It’s not news anymore, but Microsoft is acquiring Nokia for a pocket change of US$ 7.2 billion.
This is for a company that, just six years back had a market capitalization of US$ 145 billion, and US$ 20 billion a year ago.
“It’s a bold step in the future,” says the Microsoft chief Steve Ballmer. Time would tell that…and time, as Mr. Ballmer must know is very important when decisions are irreversible.
By the way, Microsoft lost US$ 15 billion from its market cap after announcing this US$ 7.2 billion acquisition! 😮
What is more, Nokia has seen its smartphone market share decline from 25% in 2010 – when it first partnered Microsoft – to 5% now. So why is this “strategic partnership” a bold step is known only to Mr. Ballmer.
Anyways, here are 10 quick lessons you, as an investor, can take from Nokia’s fall and apply them to your own analysis of Indian companies. There may be many more lessons, but here are my top ten picks…
10 Lessons from Nokia’s Fall
- Don’t take Peter Lynch’s idea of “buy a company whose products you love” on face value. Even Lynch did not mean it that way. Nokia 3315 was the first thing I had purchased using 33% of my first-ever salary in 2003, and I am yet to find a better mobile handset. But then…
- Businesses change in the future, more than they have changed in the past. So don’t rely 100% on a company’s brilliant past. And please don’t rely at all on that excel model that helps you easily create a bright future.
- You will hear a lot of bulls**t from companies that are going down the hill – things like “going through a transition”, “new strategy”, “synergies”, “leveraging new opportunities”, “moving to a brighter future” etc. Don’t trouble your brain trying to guess what these mean. Simply avoid such companies.
- Superior technology is not a moat. It never was. The benefits rarely fall to the bottomline, and are mostly passed on to the customers. See how better technology has gotten cheaper over the years. So, good for you but not for tech companies.
- Beware of companies full of corporate arrogance, complacency, denial and hubris. Such companies often fall, and big time!
- Be watchful of companies that ignore competition. For such companies, there are several “Oh s**t!” moments waiting to happen.
- Remember the “frog in boiling water” effect. Nokia has been in boiling water for long without accepting that that water was killing it.
- A person who neglects family for years will have a tough time winning back trust. Nokia did that for long with its family – its diehard customers. Most service-oriented companies in India are doing that already. They lure new customers, and mistreat the existing ones.
- When companies grow very big and successful, they often get bureaucratic. And that’s one big cause of their downfall. So if someone tells you that large businesses/stocks are safe businesses/stocks, you know the stupidity of the argument.
- Remember what a wise man once said – over the long-run you will probably do better building a portfolio of companies that make you uncomfortable than building one of companies that make you comfortable (and Nokia made a lot of its investors comfortable till a few years back).
Microfost, yeh tune kya kia! Iski sazaa milegi…barabar milegi! 😉