Billionaire investor George Soros' hedge fund only manages his personal fortune these days, but with a net wealth of some $25 billion, it's still closely watched. And while trying to mirror Soros' moves off the 13F isn't a smart strategy, we may be able to glean something from his moves. The latest 13F shows us that Soros cashed out more than 80% of his stake in both Microsoft Corporation (MSFT 0.37%) and Zynga (ZNGA) last quarter, after investing in both companies less than one year.
Let's look at what's happening with these two companies, and the result of Soros' moves. Should investors follow Soros, or take another approach?
Makin' money
It looks like Soros probably did well on both investments, depending on exactly when he bought and sold, which the 13F doesn't report:
From the lowest point in late 2013 when he bought to the stock's peak in March, Soros could have made as much as a 65% gain in less than six months on Zynga.
Microsoft shares -- from the lowest point in the quarter Soros bought, to the peak in late March -- climbed as much as 28% during Soros' holding period, so chances are, he made a nice return over the nine or less months he held the stake sold last quarter.
Big fat caveat
This is where individual investors like you and me have to remember a few things:
- Timing the market is something we almost never get right.
- 13F data is months old when its made public, so there's no "time" value to the data.
And since we can't use this data to follow an investor who may have a track record of getting in and out at good times, we are better off focusing on the fundamentals of the businesses at hand.
Microsoft reinvigorated under a new leader
There's no argument that the company's bread-and-butter Windows business continues to be challenged by a shrinking PC market, and the company has yet to really hit it big with anything in the tablet or smartphone world. But its mission-critical role in the enterprise space continues to be strong, and the growth of mobile -- whether or not the company ever makes massive inroads -- actually strengthens Microsoft's place in the enterprise. Simply put, much of the technical load is being shifted away from PCs and to the cloud and servers, where Microsoft is growing its business.
Steve Ballmer's retirement has been called long overdue by many Microsoft shareholders, and he's been replaced by longtime Microsoft executive Satya Nadella. Plus, founder and Chairman Bill Gates is taking on an advisory role, and stepping down as chairman. Combined, the company has a great opportunity to refocus on growth, without the potential of Gates' and Ballmer's presence overshadowing Nadella.
Besides, it's not like the company has performed terribly over the past few years:
MSFT EPS Diluted (TTM) data by YCharts
Microsoft stock is up more than 101% over this timeframe.
Zynga remains hard to predict
The following chart says a lot about Zynga as an investment:
ZNGA EPS Diluted (TTM) data by YCharts
The reality is, the company's "free to play" model, which relies on players' willingness to pay up for add-ons to a game that starts out as free, is a tough place to carve out a living. Zynga must both invest in developing free content with the hopes of hitting it big, like with past successes Farmville and Words With Friends. But with growing competition for gamers from the likes of King Digital and a plethora of small developers, it's very hard to predict a consistent and sustainable level of success.
On the positive side, Zynga does have a veritable mountain -- some $1.2 billion -- of cash and securities. However, the company was free cash flow negative in 2012, and then showed a positive number ($25 million) last year, before dipping back into the negative so far in 2014.
Final thoughts: Look at the long term
The reality is, it's really, really hard to time the market, and the majority of investors that try, fail. And since 13F filings don't give us timely data, it's better to look at the bigger picture. And while Zynga shares are really cheap today -- in dollars -- they're actually more expensive in terms of price-to-sales, since Zynga's revenue has fallen sharply this year. If you're considering investing in Zynga, realize that the stock is going to be really volatile, and there's almost no solid way to reliably predict that the company will have another hit game -- and one that customers will pay up for -- in the near future.
Microsoft, on the other hand, remains a critically important company to modern businesses, and it doesn't have to worry about paying customers. Add in a nice 2.8% dividend and a long-term share buyback program, and between the two, Microsoft is a better bet for long-term wealth.
