Don’t Fight Trends – So Don’t Invest in Best Buy

by Adam Hartung | Mar 9, 2015 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership

Best Buy, the venerable electronics retailer, is hitting 52 week highs. Coming off a low of $24 in April, 2014 the current price of about $40 is a 67% increase in just 10 months. Analysts are now cheering investors to own the stock, with Marketwatch pronouncing that the last bearish analyst has thrown in the towel.

If you are a trader, perhaps you want to consider this stock. But if you aren’t an investment professional, and you buy and hold stocks for years, then Best Buy is not a stock you should own.

The bullish case for owning Best Buy is based on recovering sales per store, and recovering earnings, after a reduction in the number of stores, and employees, lowered costs. Further, with Radio Shack now in bankruptcy sales are showing an uptick as customers swing over. And that is expected to continue as Sears closes more stores on its marches toward bankruptcy. Additionally, it is hoped that lower gasoline prices will allow consumers to spend more on electronics and appliances at Best Buy.

But, this completely ignores the trend toward on-line retail sales, and the long-term deleterious impact this trend will have on Best Buy. According to the U.S. Census Bureau, on-line sales as a percent of all retail have grown from less than 2.4% in 2005 to over 7.6% by end of 2014 – more than tripling! But more critical to this discussion, all retail sales includes automobiles, lumber, groceries – lots of things where there is little or no online volume.

As most folks know, the number one category for online sales is computers and consumer electronics, which consistently accounts for about 20% of ALL online retail. In fact, about 25% of all consumer electronics are sold online. So the growth in online retail is disproportionately in the Best Buy wheelhouse. The segment where Best Buy competes against streamlined online retailers such as NewEgg.com, ThinkGeek.com and the ever-dominant Amazon.com.

So while in the short term some traditional retail customers will now shift demand to Best Buy, this is not unlike the revenue “bounce” Best Buy received when Circuit City failed. Short term up, but the long term trend continued hammering away at Best Buy’s core market.

This is a big deal because the marginal economic impact of this shift is horrific to Best Buy. In traditional retail most costs are “fixed,” meaning they can’t be changed much month to month. The cost of real estate, store maintenance, utilities and staff cannot be easily adjusted – unless there is a decision to close a gob of stores. Thus losing even a few sales, what economists call “marginal” sales, wreaks havoc on earnings.

Back in 2010 and 2011 Best Buy made a net income (’12 and ’13 were losses) of about 2.6% – or about $2.60 on every $100 revenue. Cost of Goods sold is about 75% of revenue. So on $100 of revenue, $25 is available to cover fixed costs. If revenue falls by just $10, Best Buy loses $2.50 of margin to cover fixed costs. Remember, however, that the net income is only $2.60. So losing 10% of revenue ($10 out of the $100) means Best Buy loses $2.50 of contribution to fixed costs, and that is deducted from net income of $2.60, leaving Best Buy with a meager 10cents of profitability. A 10% loss of revenue wipes out 96% of profits!

Now you know why retailers who lose even a small part of their sales are suddenly closing stores right and left.

Looking forward, online retail sales are forecast to grow by another 57%, reaching 11% of total retail by 2018. But, as we know, this is disproportionately going to be driven by consumer electronics. Which means that while sales for Best Buy stores are up short term, long term they will plummet. That means there will be more store closings, and layoffs as sales shrink. And, increasingly Best Buy will have to compete head-to-head online against entrenched, leading competitors who have been stealing market share for 10+ years.

If you want to trade on the short-term uptick in revenue, and return to slight profitability, then hold your breath and see if you can outsmart the market by picking the right time, and price, for buying and selling Best Buy. But, if you like to invest in strong companies you expect to grow for another 5 years without having to be a market timer, then avoid Best Buy.

Quite simply, it is never a good idea to bet against a long term trend. Short term aberrations will happen, and it may look like the trend has changed. But the trend to online commerce is picking up steam, not reducing. If you want to invest in retail, you want to invest in those companies that demonstrate they can capture the customer’s revenue in the growing, online marketplace.

Twelve Days of Christmas for Investors

by Adam Hartung | Dec 24, 2014 | Defend & Extend, Disruptions

The Twelve Days of Christmas refers to an ancient festive season which begins on December 25. Colonial Americans modified this a bit by creating wreaths which they hung on neighbors’ doors on December 24 in anticipation of starting the festival of twelve days, which historically included feasts and celebrations.

Better known is the song “The Twelve Days of Christmas” which is believed to have started as a French folk rhyme, then later published in 1780 England. The song commemorates the twelve days of Christmas by offering ever grander gifts on each day of the holiday season.

So, it being Christmas Eve I am stealing this idea completely and offering my list of the 12 gifts investors would like to receive this holiday season from the companies into which they invest:

Stop waxing eloquently about what you did last year or quarter. Yesterday has come and gone. Tell me about the future.
Tell me about important trends that are going to impact your business. Is it demographics, aging population, the ecology movement, digitization, regulatory change, organic foods, mobility, mobile payments, nanotech, biotech… ? What are the critical trends that will impact your business going forward?
Tell me your future scenarios. How will these trends change the way your customers and your company will behave? What are your most likely scenarios (and don’t try to be creative in an effort to preserve the status quo!)
Tell me how the game will change for your industry over the next 1, 3, and 5 years. How will things be different for the industry, based on the trends and scenarios. The world is a fast changing place, and I want to know how this will change your industry.
Tell me about the customers you lost last year. I gain no value from hearing about, or from, your favorite customers that love what currently do. Instead, bring me info on the customers who are buying alternative products, changing their behaviors, in ways that might impact sales. Even if these changes are only a small percentage of revenue.
Tell me who the competitors are that are trying to change the game. Don’t tell me that these companies will fail. Tell me who the folks are that are really trying to do something new and different.
Tell me about the fringe competitors. The ones you constantly say do not matter because they are small, or not part of the historical industry, or from some distant location where you don’t now compete. Tell me about the companies doing the new things which are seen as remote and immaterial, but are nibbling at the edges of the market.
Tell me how you are reacting to potential game changers in your market. What are your plans to deal with disruptive competitors and disruptive innovations affecting your way of doing business? Other than working harder, faster, cheaper and planning to do better, what are you planning to do differently?
Tell me how you intend to be a market game changer. Tell me what you intend to do that aligns with trends and leads the company toward fulfilling future scenarios as a market leader.
Tell me what projects you are undertaking to experiment with new forms of competition, attracting new customers and creating new markets. Tell me about your teams that are working in white space to discover new opportunities.
Tell me how you will disrupt your own organization so the constant effort to enhance the old success formula doesn’t kill any effort to do something new and different. How will you keep these experimental white space teams from being killed, or simply starved of resources, by the organizational inertia to defend and extend the status quo.
Tell me the goals of these project teams, and how they will be nurtured and supplemented, as well as evaluated, to lead the company in new directions. Don’t just tell me that you will measure sales or profits, but rather real goals that measure market learning and ability to understand new customer behaviors.

If investors had this transparency, rather than merely reams and reams of historical data, just imagine how much smarter we could all invest.

Happy Holidays!

Why You Can’t Invest Like Warren Buffett – and Shouldn’t Try

by Adam Hartung | Nov 19, 2014 | Current Affairs, Leadership

Warren Buffett is the famous head of Berkshire Hathaway. Famous because he has made himself a billionaire several times over, and made his investors excellent returns.

Berkshire Hathaway doesn’t really make anything. Rather, it owns companies that make things, or supply services. So when you buy a share of BRK you are actually buying a piece of the companies it owns, and a piece of the over $116B it invests in equities of other public companies from the cash flow of its owned entities.

Over the last decade the value of a share of BRK has increased 149%. Pretty darn good, considering the DJIA (Dow Jones Industrial Average) has only increased 64%, and the S&P 500 69%, in the same time period. So for long-term investors, putting your money with Mr. Buffett would have done more than twice as good as buying one of these leading indices.

For this reason, many investors recommend looking at what Berkshire Hathaway buys in its equity portfolio, and then buying those same stocks. On the face of it, seems smart. “Invest like Warren Buffet” one might say.

But that would be a bad idea. Berkshire Hathaway’s value has little to do with the publicly traded equities it owns. In fact, those holdings may well be a damper on BRKs valuation.

Of that giant portfolio, 4 equities make up 58% of the total holdings. Let’s look at how those have done the last decade:

American Express (AXP,) about 10% of the portfolio, is up 83%
Coke (KO,) about 15% of the portfolio, is up 109%
IBM (IBM,) about 10% of the portfolio, is up 64%
Wells Fargo (WFC,) nearly 25% of the portfolio) is up 71%

Note – not one of these stocks is up anywhere near as much as Berkshire Hathaway. There is no mathematical formula which one can use to multiply the gains on these stocks and interpret that into an overall value increase of 149%!

There are several other large, well known companies in the Berkshire Hathaway portfolio which have large (millions of shares being held) but lesser percentage positions:

ExxonMobil (XOM) up 86%
General Electric (GE) down <26%>
Proctor & Gamble (PG) up 61%
USBancorp (USB) up 40%
USG (USG) down <30%>
UPS up 24%
Verizon up 38%
Walmart up 61%

This is not to say that Berkshire Hathaway has owned all these stocks for 10 years. And, this is not all the portfolio. But it is well known that Mr. Buffett is a long-term investor who eschews short-term trading. And, these are at least randomly representative of the portfolio holdings. So by buying and selling shares at different times, and using various trading strategies, BRK’s returns could be somewhat better than the performance of these stocks. But, again, there is no arithmetic which exists that can turn the returns on these common stocks into the 149% gain which Berkshire Hathaway has achieved.

Simply put, Berkshire Hathaway makes money by doing things that no individual investor could ever accomplish. The cash flow is so enormous that Mr. Buffett is able to make deals that are not available to you, me or any other investor with less than $1B (or more likely $10B.)

When the banks looked ready to melt down in 2008 GE was in a world of hurt for money to shore up problems in its GE Capital unit. When GE went out to raise $12B via a common stock sale it turned to Mr. Buffett to lead the investment. And he did, taking a $6B position. For being so gracious, in addition to GE shares Berkshire Hathaway was able to buy $3B in preferred shares with a guaranteed dividend of 10%! Additionally, Mr. Buffett was given warrants allowing him to buy up to $3B of GE shares for a fixed price of $22.25 per share regardless of the price at which GE was trading. These are what are called “sweeteners” in the financial trade. They greatly reduce the risk on the common stock purchase, and simultaneously dramatically improve the returns.

These “sweeteners” are not available to us average, ordinary investors. And this is critical to understand. Because if someone thought that Mr. Buffett made all that money by being a good stock picker, that someone would be operating on the wrong assumption. Mr. Buffett is a very good deal maker who gets a lot more when making his investments than we get. He can do that because he can move so much money, so quickly. Faster even than any large bank.

Take, for example, the recent deal for Berkshire Hathaway to acquire the Duracell battery business from P&G. Where most of us (individuals or corporations) would have to fork over the $3B that P&G wanted, Berkshire Hathaway can simply give back P&G shares it has long held. By exchanging those shares for Duracell, Berkshire avoids paying any tax on the stock gains – thus using P&G shares in its portfolio as a currency to buy the battery business with pre-tax dollars rather than the after-tax dollars the rest of us would have to put up. In a nutshell, that saves at least 35%. But, beyond that, the deal also allows P&G to sell Duracell without having to pay tax on the assets from their end of the transaction, saving P&G 35% as well. To make the same deal, any other buyer would have been required to pay a lot more money.

Acquiring Duracell Berkshire gets 100% of another slow-growth but very good cash flow company (like Dairy Queen, Burlington Northern Rail, etc.) and does so at a very favorable price. This deal adds more cash flow to BRK, more assets to BRK, and has nothing to do with whether or not the stocks in its public equity portfolio are outperforming the DJIA or S&P.

This in no way diminishes Berkshire Hathaway, or Mr. Buffett. But it points out that many people have very bad assumptions when it comes to understanding how Mr. Buffett, or rather Berkshire Hathaway, makes money. Berkshire Hathaway is not a mutual fund, and no investor can make a fortune by purchasing common shares in the companies where Mr. Buffett invests.

Berkshire Hathaway is an extremely complicated company, and deep in its core it is an institution that has a tremendous understanding of financial instruments, financial markets, tax laws and risk. It has long owned insurance companies, and its leaders understand actuarial tables as well as how to utilize complex financial instruments and sophisticated tax opportunities to reduce risk, and raise returns, on deals that no one else could make.

By maximizing cash flow from its private holdings the Berkshire Hathaway constantly maintains a very large cash pool (currently some $60B) which it can move very, very quickly to make deals nobody, other than some of the largest private equity pools, could obtain.

The process by which Berkshire Hathaway decides to buy, hold or sell any security is unique to Berkshire Hathaway. The size of its transactions are enormous, and where we as individuals buy shares by the hundreds (the old “round lot,”) Berkshire buys millions. What stocks Berkshire Hathaway chooses to buy, hold or sell has much more to do with the unique situation of Berkshire Hathaway than stock price forecasts for those companies.

It is a myth for an individual investor to think they could invest like Mr. Buffett, and trying to emulate his returns by emulating the Berkshire portfolio is simply unwise.

4 Myths and 1 Truth About Investing

by Adam Hartung | Oct 18, 2012 | Investing, Trends

Today is the 25th anniversary of the 1987 stock market crash that saw the worst ever one-day percentage decline on Wall Street. Worse even than during the Great Depression. It’s a reminder that the market has had several October “crashes;” not only 1929 and 1987 but 1989, 1998, 2001 and 2007.

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For some people this serves as a reminder to invest very, very cautiously. For others it is seen as market hiccups that present buying opportunities. For many it is an admonition to follow the investing advice of Mark Twain (although often attributed to Will Rogers) and pay more attention to the return of your money than the return on your money.

I’ve been investing for 30 years, and like most people I did it pretty badly. For the first 20 years the annual review with my Merrill Lynch stock broker sounded like “Kent, why is it I’m paying fees to you, yet would have done better if I simply bought the Dow Jones Industrial Average?” Across 20 years, almost every year, my “managed” account did more poorly than this collection of big, largely dull, corporations.

A decade ago I dropped my broker, changed my approach, and things have gone much, much better. Simply put I realized that everything I had been taught about investing, including my MBA, assured I would have, at best, returns no better than the overall market. If I used the collective wisdom, I was destined to perform no better than the collective market. Duh. And that is if I remained unemotional and disciplined – which I didn’t assuring I would do worse than the collective market!

Remember, I am not a licensed financial advisor. Below are the insights upon which I based my new investing philosophy. First, the 4 myths that I think steered me wrong, and then the 1 thing that has produced above-average returns, consistently.

Myth 1 – Equities are Risky

Somewhere, somebody came up with a fancy notion that physical things – like buildings – are less risky than financial assets like equities in corporations. Every homeowner in America now knows this is untrue. As does anybody who owns a car, or tractor or even a strip mall or manufacturing plant. Markets shift, and land and buildings – or equipment – can lose value amazingly quickly in a globally competitive world.

The best thing about equities is they can adapt to markets. A smart CEO leading a smart company can change strategy, and investments, overnight. Flexible, adaptable supply chains and distribution channels reduce the risk of ownership, while creating ongoing value. So equities can be the least risky investment option, if you keep yourself flexible and invest in flexible companies.

Hand-in-glove with this is recognizing that the best equities are not steeped in physical assets. Lots of land, buildings and equipment locks-in the P&L costs, even though competitors can obsolete those assets very quickly. And costs remain locked-in even though competition drives down prices. So investing in companies with lots of “hard” assets is riskier than investing in companies where the value lies in intellectual capital and flexibility.

Myth 2 – Invest Only In What You Know

This is profoundly ridiculous. We are humans. There is infinitely more we don’t know than what we do know. If we invest only in what we know we become horrifically non-diversified. And worse, just because we know something does not mean it is able to produce good returns – for anybody!

This was the mantra Warren Buffet used to turn down a chance to invest in Microsoft in 1980. Oops. Not that Berkshire Hathaway didn’t find other investments, but that sure was an easy one Mr. Buffett missed.

To invest smartly I don’t need to know a lot more than the really important trends. I don’t have to know electrical engineering, software engineering or be
an IT professional to understand that the desire to use digital mobile
products, and networks, is growing. I don’t have to be a bio-engineer to know that pharmaceutical solutions are coming very infrequently now, and the future is all in genetic developments and bio-engineered solutions. I don’t have to be a retail expert to know that the market for on-line sales is growing at a double digit rate, while brick-and-mortar retail is becoming a no-growth, dog-eat-margin competitive world (with all those buildings – see Myth 1 again.) I don’t have to be a utility expert to know that nobody wants a nuclear or coal plant nearby, so alternatives will be the long-term answer.

Investing in trends has a much, much higher probability of making good returns than investing in things that are not on major trends. Investing in what we know would leave most people broke; because lots of businesses have more competition than growth. Investing in businesses that are developing major trends puts the wind at your back, and puts time on your side for eventually making high returns.

Oh, and there are a lot fewer companies that invest in trends. So I don’t have to study nearly as many to figure out which have the best investment options, solutions and leadership.

Myth 3 – Dividends Are Important to Valuation

Dividends (or stock buybacks) are the admission of management that they don’t have anything high value into which they can invest, so they are giving me the money. But I am an investor. I don’t need them to give me money, I am giving them money so they will invest it to earn a rate of return higher than I can get on my own. Dividends are the opposite of what I want.

High dividends are required of some investments – like Real Estate Investment Trusts – which must return a percentage of cash flow to investors. But for everyone else, dividends (or stock buybacks) are used to manipulate the stock price in the short-term, at the expense of long-term value creation.

To make better than average returns we should invest in companies that have so many high return investment opportunities (on major trends) that the company really, really needs the cash. We invest in the company, which is a conduit for investing in high-return projects. Not paying a dividend.

Myth 4 – Long Term Investors Do Best By Purchasing an Index (or Giant Portfolio)

Go back to my introductory paragraphs. Saying you do best by doing average isn’t saying much, is it? And, honestly, average hasn’t been that good the last decade. And index investing leaves you completely vulnerable to the kind of “crashes” leading to this article – something every investor would like to avoid. Nobody invests to win sometimes, and lose sometimes. You want to avoid crashes, and make good rates of return.

Investors want winners. And investing in an index means you own total dogs – companies that almost nobody thinks will ever be competitive again – like Sears, HP, GM, Research in Motion (RIM), Sprint, Nokia, etc. You would only do that if you really had no idea what you are doing.

If you are buying an index, perhaps you should reconsider investing in equities altogether, and instead go buy a new car. You aren’t really investing, you are just buying a hodge-podge of stuff that has no relationship to trends or value cration. If you can’t invest in winners, should you be an investor?

1 Truth – Growing Companies Create Value

Not all companies are great. Really. Actually, most are far from great, simply trying to get by, doing what they’ve always done and hoping, somehow, the world comes back around to what it was like when they had high returns. There is no reason to own those companies. Hope is not a good investment theory.

Some companies are magnificent manipulators. They are in so many markets you have no idea what they do, or where they do it, and it is impossible to figure out their markets or growth. They buy and sell businesses, constantly confusing investors (like Kraft and Abbott.) They use money to buy shares trying to manipulate the EPS and P/E multiple. But they don’t grow, because their acquired revenues cost too much when bought, and have insufficient margin.

Most CEOs, especially if they have a background in finance, are experts at this game. Good for executive compensation, but not much good for investors. If the company looks like an acquisition whore, or is in confusing markets, and has little organic growth there is no reason to own it.

Companies that are developing major trends create growth. They generate internal projects which bring them more customers, higher share of wallet with their customers, and create new markets for new revenues where they have few, if any competition. By investing in trends they keep changing the marketplace, and the competition, giving them more opportunities to sell more, and generate higher margins.

Growing companies apply new technologies and new business practices to innovate new solutions solving new needs, and better solve old needs. They don’t compete head-on in gladiator style, lowering margins as they desperately seek share while cutting costs that kills innovation. Instead they ferret out new solutions which give them a unique market proposition, and allow them to produce lots of cash for adding to my cash in order to invest in even more new market opportunities.

If you had used these 4 myths, and 1 truth, what would your investments have been like since the year 2000? Rather than an index, or a manufacturer like GE, you would have bought Apple and Google. Remember, if you want to make money as an investor it’s not about how many equities you own, but rather owning equities that grow.

Growth hides a multitude of sins. If a company has high growth investors don’t care about free lunches for workers, private company planes, free iPhones for employees or even the CEO’s compensation. They aren’t trying to figure out if some acquisition is accretive, or if the desired synergies are findable for lowering cost. None of that matters if there is ample growth.

What an investor should care about, more than anything else, is whether or not there are a slew of new projects in the pipeline to keep fueling the growth. And if those projects are pursuing major trends. Keep your eye on that prize, and you just might avoid any future market crashes while improving your investment returns.

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Microsoft’s Crazy Windows 8 Bet – How you can invest smarter

by Adam Hartung | Feb 29, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Web/Tech

This week people are having their first look at Windows 8 via the Barcelona, Spain Mobile World Congress. This better be the most exciting Microsoft product since Windows was created, or Microsoft is going to fail.

Why? Because Microsoft made the fatal mistake of "focusing on its core" and "investing in what it knew" – time worn "best practices" that are proving disastrous!

Everyone knows that Microsoft has returned almost nothing to shareholders the last decade. Simultaneously, all the "partner" companies that were in the "PC" (the Windows + Intel, or Wintel, platform) "ecosystem" have done poorly. Look beyond Microsoft at returns to shareholders for Intel, Dell (which recently blew its earings) and Hewlett Packard (HP – which says it will need 5 years to turn around the company.) All have been forced to trim headcount and undertake deep cost cutting as revenues have stagnated since 2000, at times falling, and margins have been decimated.

This happened despite deep investments in their "core" PC business. In 2009 Microsoft spent almost $9B on PC R&D; over 14% of revenues. In the last few years Microsoft has launched Vista, Windows 7, Office 2009 and Office 2010 all in its effort to defend and extend PC sales. Likewise all the PC manufacturers have spent considerably on new, smaller, more powerful and even cheaper PC laptop and desktop models.

Unfortunately, these investments in their core expertise and markets have not excited users, nor created much growth.

On the other hand, Apple spent all of the last decade investing in what it didn't know much about in 2000. Rather than investing in its "core" Macintosh business, Apple invested in the trend toward mobility, being an early leader with 3 platforms – the iPod, iPhone and iPad. All product categories far removed from its "core" and what it new well. But, all targeted at the trend toward enhanced mobility.

Don't forget, Microsoft launched the Zune and the Windows CE phones in the last decade. But, because these were not "core" products in "core" markets Microsoft, and its partners, did not invest much in these markets. Microsoft even brought to market tablets, but leadership felt they were inferior to the PC, so investments were maintained in traditional PC products. The Zune, Windows phone and early Windows tablets all died because Microsoft and its partner companies stuck to investing their most important, and best known, PC business.

Where are we now? Sales of PC's are stagnating, and going to decline. While sales of mobile devices are skyrocketing.

Source: Business Insider 2/14/12

Today tablet sales are about 50% of the ~300M unit PC sales. But they are growing so fast they will catch up by 2014, and be larger by 2015. And, that depends on PC sales maintaining. Look around your next meeting, commuter flight or coffee shop experience and see how many tablets are being used compared to laptops. Think about that ratio a year ago, and then make your own assessment as to how many new PCs people will buy, versus tablets. Can you imagine the PC market actually shrinking? Like, say, the traditional cell phone business is doing?

By focusing on Windows, and specifically each generation leading to Windows 8, Microsoft took a crazy bet. It bet it could improve windows to keep the PC relevant, in the face of the evident trend toward mobility and ease of use. Instead of investing in new technologies, new products and new markets – things it didn't know much about – Microsoft chose to invest in what it new, and hoped it could control the trend.

People didn't want a PC to be mobile, they wanted mobility. Apple invested in the trend, making the MP3 player a winner with its iPod ease of use and iTunes market. Then it made smartphones, which were largely an email device, incredibly popular by innovating the app marketplace which gave people the mobility they really desired. Recognizing that people didn't really want a PC, they wanted mobility, Apple pioneered the tablet marketplace with its iPad and large app market. The result was an explosion in revenue by investing outside its core, in technologies and markets about which it initially knew nothing.

Apple would not have grown had it focused its investment on its "core" Mac business. In the last year alone Apple sold more iOS devices than it sold Macs in its entire 28 year history!

Source: Business Insider 2/17/2012

Today, the iPhone business itself is bigger than all of Microsoft. The iPad business is bigger than the desktop PC business, and if included in the larger market for personal computing represents 17% of the PC market. And, of course, Apple is now worth almost twice the value of Microsoft.

We hear, all the time, to invest in what we know. But it turns out that is NOT the best strategy. Trends develop, and markets shift. By constantly investing in what we know we become farther and farther removed from trends. In the end, like Microsoft, we make massive investments trying to defend and extend our past products when we would be much, much smarter to invest in new technologies and markets that are on the trend, even if we don't know much, if anything, about them.

The odds are now stacked against Microsoft. Apple has a huge lead in product sales, market position and apps. It's closest challenger is Google's Android, which is attracting many of the former Microsoft partners (such as LG's recent defection) as they strive to catch up. Company's such as Nokia are struggling as the technology leadership, and market position, has shifted away from Microsoft as mobility changed the market.

Microsoft's technology sales used to be based upon convincing IT departments to use its platform. But today users largely buy mobile devices with their own money, and eschew the recommendations of the IT department. Just look at how users drove the demise of Research In Motion's Blackberry. IT needs to provide users with tools they like, and use platforms which are easy and low-cost to leverage with big app bases. That favors Apple and Android, not Microsoft with its far, far too late entry.

You can be smarter than Microsoft. Don't take the crazy bet of always doubling down on what you know. Put your focus on the marketplace, and identify shifts. It's cheaper, and smarter, to bet early on trends than constantly trying to fight the trend by investing – usually at an ever higher amount – in what you know.

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Don’t Fight Trends – So Don’t Invest in Best Buy

Twelve Days of Christmas for Investors

Why You Can’t Invest Like Warren Buffett – and Shouldn’t Try

Microsoft’s Crazy Windows 8 Bet – How you can invest smarter

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