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Steve Ballmer’s Interview with Charlie Rose

October 23, 2014

Two nights ago, I watched former Microsoft CEO Steve Ballmer be interviewed by Charlie Rose and saw many of my ideas confirmed by Ballmer.

Steve Ballmer just retired from Microsoft, is its largest individual stockholder having been there almost from its beginning and has a reputed net worth of $20 billion.  He also just purchased the Los Angeles Clippers basketball team for $2 billion.  Here is some of the things he said.

  • His personal wealth before he purchased the Clippers was primarily in index funds and Microsoft stock.  I have been recommending index funds since before they became as popular as they are now.
  • He looked at the Clippers as an investment that has a cash flow equal to or greater than what he is now getting so he does not see any drop in his income because of the acquisition.  Dividends are always an important consideration in investing.
  • Assuming the Clippers will need to provide him with a 2.5% cash flow, he can value the team at a much higher amount than a typical business investor who might look for an above market return on investment needing to earn 15% to 25% depending upon risk.  The way Ballmer determined the value makes him more of a strategic investor than a traditional investor eschewing rather than following a traditional “fair market value” based valuation.
  • Ballmer believes the risk to owning the LA team is lower than owning stocks and that over time, e.g. thirty years, the team would appreciate at least as much as the market but probably greater.  Therefore he made a nontraditional investment with 10% of his portfolio with no loss of cash flow, a potential for greater long-term wealth creation, a diversification of his assets into an area that he feels will have increasing investor demand for the limited supply of teams and an opportunity to have fun.  He also pointed out that the business has competent in-place management so there will not be an inordinate demand on his time.
  • Ballmer’s reply to Rose’s comment about the drop in market cap of Microsoft under his reign as CEO was that it he took over at a time when the valuations were not logical, were not based on earnings and were spurious and nonsensical.  The present market cap is solid and based on earnings and a reasonable dividend yield and P/E ratio.  His views are exactly what I said about value in my blog posted earlier that day.  See https://partners-network.com/2014/10/21/what-determines-value/
  • Ballmer also pointed out that Microsoft’s earnings tripled under his tenure to approximately $22 billion.  Something he is extremely proud of.
  • Ballmer was hesitant to criticize any specific company with high stock valuations but did point out that he feels the only way to properly value a company is based on earnings and future earnings potential. Temporary infatuation with a company that sends their stock prices sky high cannot have those values maintained without eventual sustainable earnings.  Also my views.

I watched the interview after the first World Series game ended and was enthralled enough to stay up to see it completely.  If you get an opportunity to see it, watch it – it is a treat.

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