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What You’ll Learn Today

• How long-term investing safeguards your investment even after market crashes.

• Exercising patience and being opportunistic during market downturns can have significant benefits.

• How long-term investing in the right companies is a tried and trusted approach to building wealth.

Don’t Rush It!

The Case of Microsoft (MSFT)

Intro

Why do we preach a long-term investment approach at Raising InvestorIQ? In case you didn’t know, it’s not just for the fun of it. There are massive amounts of data and research that support the benefits of long-term investing, not only for dividend growth but also for stock appreciation.

One shining star of the power of long-term investing is Microsoft.

In this article, we’ll break down the history of Microsoft’s stock performance, helping you understand how long-term investing safeguards your investment even after market crashes. 

Microsoft’s Beginnings

Bill Gates and Paul Allen started Microsoft on April 4, 1975 in Albuquerque, New Mexico. The name originates from two of their primary offerings: microprocessors and software. Their initial goal was to develop software for the Altair 8800, one of the first personal computers ever made.

By 1980, Microsoft solidified its first deal with IBM. Five years later, Microsoft released Windows.

Within the first 15 years of operations, Microsoft was the world’s largest personal computer software dealer. Just one year later, in 1986, Microsoft went public with a $21 initial public offering (IPO) per share stock price. By the end of opening day, the price was $35.50. For reference, $21 in 1986 is worth around $60 dollars today and $35.50 was just over $100.

New Highs Until Dot-com Bubble Burst

Over the course of the 1990s, the possibilities for Microsoft seemed endless. From new product innovations to a growing share price, what couldn’t Microsoft do?

Then, March 2000 hit. The time period between March 2000 and October 2002 eroded stock prices and erased nearly all of the early gains in the technology sector, a time known as the bursting of the dot-com bubble.

The graph below depicts Microsoft’s share price from January 1999 through the end of 2002.

Investors who rushed to buy shares of the indestructible Microsoft while it was trading at all-time highs watched the stock plummet during the dot-com bubble burst, reaching a low of $12 per share by the end of 2000. Two years after the initial crash, Microsoft’s stock price was still treading below $20.

Slowly But Surely…Microsoft Rebounds

The sudden drop in Microsoft’s value caused countless investors to panic sell. The short-term market mentality that dominates the stock market periodically undervalues great businesses.

Microsoft was one of those great businesses that ended up being grossly undervalued as a result of the dot-com crash. Those who waited the crash out or bought at low prices - whether initial stakes or doubling-down - benefited from a stable and profitable investment over the long term.

First, Microsoft itself saw the overall market crash as a huge buying opportunity, purchasing over 40 companies in the year 2000 alone. These trends continued into 2001, with the company purchasing 16 more companies.

From January 2003 to December 2007, Microsoft’s stock price jumped from $16.67 to over $26. Although it might not seem like much, it represents a +56% gain, which is incredible for a five-year time period. Take a look at the graph below.

Over the next 15 years, Microsoft’s price has continued to trickle up, highlighting the power of long-term investing. Remember, these graphs do not also reflect the power of compounding dividend payments, which also contributed to even more upside in long-term shareholder value. This is merely stock appreciation and growth over the long term.

As Warren Buffett once stated, “The most common cause of low stock prices is pessimism - sometimes widespread, sometimes specific to a company or industry… We like pessimism because of the stock prices it produces.” In other words, seek to take advantage of times where the Market exhibits pessimism or fear, as there may be great opportunities from which to capitalize.

Key Takeaways From Microsoft

Microsoft isn’t an outlier. Long-term investing in the right companies is a tried and trusted approach to building wealth. 

In fact, the “Rule of 72” suggests that your investments will double every 7.2 years if they’re able to experience just an average return of 10%.

Similarly, a study by Morgan Stanley found that over the course of a one-year investment horizon, 23% of months invested actually produced negative returns. However, this percentage drops to 11% for a five-year investment timeframe - and to just 3% for a 10-year period.

Focusing on the short-term declines in stock prices can cause you to panic sell, reducing future gains and income. Instead, be sure to focus not on the price of the stock but the long-term value the company behind the stock holds.

When you zoom out and look at the big picture, stocks generally rebound and gain value, but always due your due diligence to remain informed about the actual businesses behind the stocks themselves. Looking back at Microsoft’s previous graphs for shorter time periods, we see a lot of highs and lows. Now, take a look at the graph below.

The once major price movements seem insignificant when looking at the entire history of Microsoft. In fact, you can barely see the price drops from the dot-com bubble or the housing market crash in 2008. The drop from COVID is far more apparent, but nevertheless, Microsoft rebounded stronger than ever, reaching a stock price above $450 in 2024.

Imagine if you invested back in 2000 when the price was under $20. With today’s prices above $450, that would be a 2,150% gain. There is never a bad time to invest money when you take a long-term investment approach. Time in the market is better than timing the market.

Be Willing to be Inactive

Another key piece of advice to heed within a sound, long-term investment strategy –  be willing to be inactive.

Great investment opportunities are exceptional. They stem from excellent companies with strong, long-term business economics that are driven by differentiated product and service offerings and durable competitive advantages. And the price you pay for the stock of such a company will also driven your returns (ROI, return on investment).

As a result, they’re not readily available at all times because you certainly don’t want to overpay. As Warren Buffett has famously said: "Price is what you pay. Value is what you get.”

With that in mind, exceptional investment opportunities entail stocks related to excellent businesses at the right price. But don’t rush to overpay due to Market hype.

Buffett has been well-known to be inactive in the Market for long periods of time, turning down deal after deal until the right one comes along. First step is to identify excellent companies with strong, long-term business economics. Next step, is to buy at the right price. Finally, stay vested in your investment decisions for the long-term, so long as they remain fundamentally sound.

Conclusion

Microsoft is just one example of the power of long-term investing. There are countless other stocks and investments that provide a similar path to wealth.

So, don’t rush it! Instead, maintain a long-term vision. Market downturns and panics are easy to spot and usually offer great investment opportunities because they don’t change the long-term outlooks of the underlying businesses’ earnings.

During these stock market corrections, stock prices tend to drop for reasons that have nothing to do with the underlying economics of their respective companies. So, don’t panic when you see the overall Market panic. Instead, look to exploit any potential buying opportunities.

Do your due diligence in the form of upfront research and analysis, move forward with confidence in your investment decisions, and allow the magic of compounding to take effect over the long-term.

Are you ready to get started on your investment journey and build long-term wealth?

If so, check out our other blog posts or sign up for our newsletter to expand your investment education and grow your wealth.

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Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions.  I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP.

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