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In John Mauldin’s former #1 seller, but still very timely book Bull’s Eye Investing, John mentions that everything ALWAYS returns to trend, sooner or later.  The return to trendline is exactly what is happening in the housing market right now.  Housing prices have a long term historical return of 3-4%, just above the inflation rate.  In the last decade, housing appreciated in many cities in the high double digits.  But now we can sit and watch as those prices return to trendline - either through additional falling prices, or by simply flatlining and waiting for the rest of the economy to catch up.

Back to Microsoft.  When Microsoft went public in 1986, it took off like a rocket and never looked back, that is until the dot-com-crash of 2001.  Since then it has flatlined for seven straight years, and looks to continue down that horizontal path indefinitely.

Microsoft went public on March 13, 1986 for $28 per share.  Adjusting for multiple stock splits, the last of which occured in 2003, the initial IPO price of Microsoft shares were just $.097.  In 1996, Microsoft shares hit $157, or $9.87 in split adjusted prices.  Those first 10 years of substantial growth resulted in an average annual investment return of near 58%.  But fast forward to 2008, and include the last seven years of near death flatline, and the Microsoft average annual returns since IPO drop substantially to near 27%.

Fast forward to 2030.  If Microsoft continues down that flatline, or slow leak trail and enters 2030 with a stock price of around $14, then its average annual return since the 1986 IPO will be around 12%, much more in line with an attainable long term trendline of any other public company.

As John Mauldin says, everything, sooner or later, returns to trend.  John Mauldin is often misrepresented as a perma-bear.  But in actuality, he is just a realist, and refuses to get caught up in the temporary hype of Wall Street.  Instead, he focuses on the hidden depths of balance sheets, unfunded pension liabilities, risky expectations and poor assumptions, demographical changes, collapsing p/e ratios and more.  It’s one of those rare and timeless pieces that needs to be purchased and read by everyone seeking better returns, or even a better understanding of the current economic climate.

Bull’s Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market by John F. Mauldin