Optimists Vs. Pessimists And The Pragmatic View

Microsoft’s stock gave a good reason to stock market optimists to celebrate yesterday: A new all-time high in the tech sector. But pessimists concentrate on the other side of the coin: It took the stock 15 years to regain its all-time high and tons of Fed money. I take the pragmatic view, which is (almost incomprehensibly) trivial.

Below is a split-adjusted chart of MSFT since the IPO:

msft_ic_20161021

The optimist is ecstatic. The claim is that this is an example of a tech stock that has delivered high total return to investors since its IPO. In fact, the annualized total return of the stock is about 25%. “This is huge”, thinks the optimist.

The pessimist points to the fact that MSFT fell about 67% in 2000 and then 75% in 2009, from the all-time high in 2000. In addition, it took the stock 16 years to recapture the 2000 highs and tons of printed money by the Fed.

Furthermore, the pessimist believes that the 25% annualized total return is only theoretical because it is possible that everyone sold the stock after the 67% or 75% declines and thus no one held it since IPO.

The optimist comes back with the claim that this shows that the company is in a solid shape and along with it a large part of the tech sector.

The pessimist argues that these moves were fueled by free money and one day everyone will be asked to pay the bill, including those who did not invest in the stock market.

Traders do not care about the optimist’s claims because they have a short-term horizon and fundamentals are not important. However, traders, and also taxpayers in general, worry about the pessimist’s claims and the possibility of the public actually paying in the future for a stock market bubble.

No one knows the answer because the market and also human history are at a crucial juncture. There is a possibility of a “singularity” that will completely change human life and its interaction with the environment but also there is skepticism as to whether this should be allowed because it will disrupt employment and cause a large part of the population to be depended on welfare.

I do not take sides, optimism versus pessimism. I think those are emotive responses that are not reflecting fundamental value and a false dichotomy. I like the pragmatic approach: I consider the consequences of my conceptions to be my actual conceptions. In this way I will not be blaming anyone in the future except myself and I will be free of any animosity.

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

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