The problem with high priced stocks
Microsoft and Exxon Mobil look like great investments but their market caps are extremely high. There is some benefit here, the price of both of these companies is very stable so you’re less likely to lose your shirt. However, large market cap stocks move less thus produce smaller profits. Its nice to invest in a stock that retains value but you also want to be able to avoid entering a stock with little price action.
While the day to day for Microsoft is plenty for day traders, its long term horizon is mostly in the same channel. For the last five years, the price of Microsoft hasn’t moved much. The price has trended from $22 to $36 on rare occasions but throwing those modest spikes out, the stock has stayed within $23 and $32 per share.
The problem with these stocks is that they require huge jumps in market cap just to gain a few dollars in share price. For the stock to gain 20%, Microsoft must add $54 billion dollars to its worth. This is a hard feat to do, especially in an illiquid market or a market fearing recession.
The natural bloated gravity of companies is why large caps have such a hard time advancing. Unlike Exxon which can gain value as oil prices rise, Microsoft has little to gain in their market. There is no market for prices of operating systems like there is oil, Microsoft would have a hard time raising the price of their operating system by 300% like the price of oil.
Stocks like MSFT provide much stability in a portfolio but a general risk assessment will show that the amount of upside is much lower than the possible downside. It would be easy for MSFT to lose marketshare and very difficult to gain it, just as it would be easy to lower prices and hard to raise them. Microsoft along with other companies suffers from this disease of market cap bloat. While they are great corporations, they aren’t right for your portfolio.