The Motley Fool Take

Microsoft is responsible for powering more than a billion computers and devices around the globe via its Windows operating system. Recently, the company has grown more diverse, with forays into gaming and more.

It might come as a surprise that Microsoft’s largest business is cloud computing, which accounted for over $60 billion in revenue during fiscal 2021, making up over 35% of the company’s total. Microsoft’s Azure platform is focused on serving businesses and is currently used by 95% of Fortune 500 companies. It offers cloud infrastructure, artificial intelligence, data analytics and security — and the list continues to grow.

Microsoft’s cloud segment is outpacing its overall growth, highlighting corporate appetites for cloud-based services, which will drive growth into the future.

Investors buying Microsoft’s stock for exposure to cloud computing also get the dominant Office 365 software business, not to mention the Xbox console gaming platform and Surface line of tablets and notebooks, which are multibillion-dollar businesses in their own right. The stock also pays a dividend that’s been hiked by an average of 10% annually over the past five years.

Long-term investors interested in cloud computing should give Microsoft a closer look. (Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of the Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Microsoft.)

Ask the Fool

From K.D. in Garden City, Idaho: What’s a secured credit card?

The Fool responds: If you’re having trouble getting approved for a credit card, it may be due to having a bad credit record — or perhaps no credit history at all. You’re not out of luck, though: You can apply for a “secured” credit card instead.

Secured credit cards require their holders to fund an account with cash, which serves as a kind of security deposit and works like a credit limit. If you’ve deposited $1,000, you can charge up to that amount, pay the bill when it comes due, and then resume charging again, up to that amount. Secured credit cards can let you build a good credit history, eventually helping you qualify for a regular credit card.

From O.S. in Franklin, Tenn.: Is a company having a lot of cash on its balance sheet a good thing?

The Fool responds: It can be good or bad. A lot of cash on hand means the company can act on opportunities that arise, such as buying another company. Some companies also store cash so that they will be able to cover taxes due when and if they bring home profits generated abroad. Excess cash can be used to reward shareholders by spending it on dividends or on repurchasing shares. (It’s generally only worthwhile to buy back shares when they’re undervalued, though.)

But a lot of cash just sitting around — especially when interest rates are low — isn’t being put to productive use, so many companies try not to keep too much on hand. If they need more cash at some point, they assume they can borrow it or issue more shares of stock.

The Fool’s School

Seth Klarman is a highly respected investor whose 1991 book, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, long out of print, often sells for more than a thousand dollars online. Klarman’s insights can help us be better investors. Here are some nuggets widely attributed to him:

“If you can remember that stocks aren’t pieces of paper that gyrate all the time — they are fractional interests in businesses — it all makes sense.”

Many investors forget or never learn that shares of stock in reputable companies are not lottery tickets that might go up or down but actual stakes in real businesses. Over the long term, shareholders will literally share in the growth or failure of the company.

“I can buy this thing for a huge fraction of what it’s worth. What am I worried about if it goes down a little bit more?”

Smart investors shouldn’t mess around once they decide a stock is valued attractively enough to buy. Waiting for a slightly better price might mean you lose out on the good price in front of you.

“Almost every financial blow-up is because of leverage.”

Just as debt (such as from credit cards) can wreck your financial life, borrowing money simply to invest in stocks can also end disastrously.

“Value investors have to be patient and disciplined, but what I really think is you need to not be greedy.”

You don’t have to buy every stock that’s going up.

“The single greatest edge an investor can have is a long-term orientation.”

On the opposite end of the spectrum from investors with a long-term outlook are day traders, who often hold various stocks for only a few days — or hours. That’s very risky and often leads to ruin. But even investors who buy into great stocks and sell them after a year or two for a gain may be leaving a lot of money on the table. Consider hanging on to well-performing stocks for many years, as long as they hold your confidence.

My Dumbest Investment

From Rob S., online: My dumbest investment was wasting a chunk of money on a loser stock, mainly because I wasn’t able to decide to dump it. I tend to hang on to losers too long, thinking they will come back. Unfortunately, I have many more investment mistakes to choose from. I currently hold 15 different stocks that are losing money — losing more than the total value of my house!

But I’m thankful for a few things — that we have the money to be able to invest enough to be able to lose that much, and that our winners far, far outweigh our losers. I’m also thankful that the Motley Fool was recommended to me by a co-worker almost a quarter of a century ago.

The Fool responds: We’re happy that you’ve kept up with us for so long, and we hope to serve you well for another 25 years.

Deciding when to sell can be a tough decision. Ideally, you’ll follow your holdings throughout the year, reading their news and financial reports at least quarterly. That can help minimize negative surprises, as you may see trouble coming. When a stock has fallen significantly, take some time to do some digging to determine whether the company is facing temporary or long-lasting problems. Holding on through short-term headwinds is often best, but long-term challenges might be cause for selling.

Who am I?

I trace my roots back to 1869, when two fellows began a canning business in Camden, N.J. In 1895, I debuted my first jar of ready-to-eat soup, Beefsteak Tomato. In 1897, I invented condensed soup, which permitted more compact packaging and made soup more affordable. I won a bronze medal for excellence at the Paris Exposition in 1900, and it remains on my cans today. My brands include Cape Cod, Goldfish, Kettle Brand, Lance, Milano, Pace, Pacific Foods, Pepperidge Farm, Prego, Snyder’s of Hanover, Swanson and V8. I now rake in more than $8 billion annually. Who am I?

Can’t remember last week’s question? Find it here.

Last week’s trivia answer: Kaiser Permanente