A good friend who reads this column regularly clucked at me the
other day: "This is nothing like any other investing column I've
ever read. You're always talking about your mistakes." It's fine to
be humble, he said, but don't be so self-deprecating that you make
readers question your credibility.
I mention this now because I was about to continue discussing
the stories in my "Practical Investing" portfolio and was,
naturally, going to focus on the disappointments rather than the
successes. So in the interest of maintaining my credibility, I'll
say quickly that the portfolio is doing fine--it's up about 19%,
which is neck and neck with my benchmark (all returns and prices
are through March 7). My best performers are Seagate Technology
), up 44%; KKR Financial (
), up 54%; American Capital (
), up 62%; and Spirit Airlines (
), up 67%.
My latest buy. With the proceeds of my sales of Lockheed Martin
and PPL Corp. (see
), I spent $10,024 on February 7 to buy 366 shares of Acacia
). Acacia is a little Newport Beach, Cal., outfit I recommended in
6 Great Stocks You've Never Heard Of
. It makes money by protecting patents. The company gets a piece of
settlements and litigation judgments in patent suits, and that
means its revenue stream--and its stock--can be erratic. But
earnings nearly tripled last year, and the company is rapidly
acquiring more patents, which could keep double-digit profit gains
coming for a long time. The stock is up about 4% since I bought
With that housekeeping out of the way, I will now move on to the
sad story of Microsoft (
), which I bought in December 2011. The software giant's shares
have been dead in the water since 1999, when they reached $59. When
the tech bubble burst, the shares deflated to about half their
value and then, like Sleeping Beauty, fell into a deep sleep for
many long years, even as Microsoft's earnings nearly quintupled.
The stock now trades at $28.
Happy ending? The tale that persuaded me that Microsoft might
soon emerge from its slumber developed over the past two years, as
I noticed a growing crowd of value managers buying its shares. They
were also expressing impatience with CEO Steve Ballmer, who took
the helm in 2000--just in time for Microsoft's long nap. Greenlight
Capital's David Einhorn, for example, began calling for Ballmer's
ouster in May 2011. The time for action seemed nigh, but one thing
gave the agitators pause: Microsoft was about to introduce the
Windows 8 operating system and a new tablet computer.
Both Windows 8 and the Surface tablet arrived late last year.
Their sales haven't awakened the stock price, but at least the
Surface seems to be gaining momentum. In my view, either these new
products will reinvigorate Microsoft's sales in the next six months
and boost the stock, or the board of directors will face growing
pressure to do something to goose shareholder value.
Microsoft has many options, including sacking Ballmer. But my
favorite plotline involves some sort of restructuring scenario in
which Microsoft is divided into as many as four companies, one of
which Ballmer could lead. Spinoffs can benefit investors because
managers of the cast-off companies can sharpen their focus on--and
be held responsible for--just one thing. Breakups make a lot of
sense when a company holds widely disparate businesses, such as
Microsoft's entertainment unit (Xbox) and its operating-software
business (Windows). Of course, it's up to management and the board
to develop the actual plotline, but they'd be unwise to twiddle
their thumbs much longer.
Kathy Kristof is a contributing editor to Kiplinger's Personal
Finance and author of the book Investing 101. You can see her