One of the seeming national pastimes among investors over the past decade has been to lament the performance of Microsoft stock. After all, from 2003 to 2013, the company has only delivered annual returns of 6% over that time frame, and that is even taking into account the price gain of over 30% this year (otherwise, those 6% annual returns would have been 3% annual returns).
However, from 2003 to 2013, Microsoft’s profits grew from $0.97 per share to $2.65 per share. That’s a 173% gain over the decade, which works out to a 10.6% annual increase over the decade. The profits at Microsoft grew just fine over the past ten years, and that’s why I don’t complain about Steve Ballmer’s leadership the way some people do. The reason why Microsoft “lagged” over the past ten years is because investors went from paying $26 for every dollar of profit that Microsoft generated in 2003 to $14 for each dollar of profit today. If you can understand that Microsoft’s underperformance these past ten years was due to shifting valuations, rather than the actual business performance of the stock, then you’re golden. You’re set to be a great long-term investor.