BlackBerry Ltd (NASDAQ:BBRY), in the wake of the major smartphone-market announcement this week that Microsoft Corporation (NASDAQ:MSFT) is initiating a $7.2 billion acquisition of Nokia Corporation (ADR) (NYSE:NOK), has now returned to the prominent limelight of acquisition rumors. BlackBerry has continued to lose market share in 2013, despite the launch of the BlackBerry 10 operating system and a new stable of smartphone devices. Last month, word got out that the board of directors at BlackBerry agreed to seek buyers for the company.
BlackBerry Ltd (BBRY): Huawei Out, but is Microsoft Corporation (MSFT) Still In?
In the first few days after the BlackBerry Ltd (NASDAQ:BBRY) sale announcement, a couple of pieces were written speculating about possible buyers for the Canadian tech company. Two of the more likely suitors mentioned were Chinese firm Huawei, which has been looking for better international market share in handsets, and Microsoft Corporation (NASDAQ:MSFT), which was building momentum with Windows Phone and may be looking to increase penetration in the enterprise, where the Windows desktop OS and servers have been dominant. However, with Steve Ballmer pulling the trigger on the Nokia Corporation (ADR) (NYSE:NOK) deal – which brings Nokia CEO Stephen Elop back into the Microsoft fold where he left in 2010 to take over in Finland – it has seemed that Microsoft has dropped off the radar as a possible buyer for BlackBerry.
In a recent Reuters report, a senior vice president at Huawei was quoted as saying that his company is not currently in the market for BlackBerry Ltd (NASDAQ:BBRY), which may be limiting the options for BlackBerry. Chen Lifang said that Huawei has not considered any acquisitions at this point, saying that “we want to rely on ourselves.” Huawei was previously considered a possible suitor for Nokia.
Though Microsoft made its play for Nokia, is it truly in lieu of BlackBerry Ltd (NASDAQ:BBRY)? At least one analyst says no, according to a piece on StreetInsider.com, which quotes Scott Penner of TD Securities as saying that Nokia and BlackBerry are apples-to-oranges companies and thus could both be acquisition targets for Redmond.
Penner wrote that “the argument for why Microsoft might want to acquire BlackBerry is mostly unchanged in our view … Microsoft still has ample cash resources (north of $70 billion) and could use BlackBerry to effectively double global smartphone market share and would provide better penetration with enterprises.”
Windows Phone Keeps Gaining, BlackBerry Keeps Fading
As Microsoft Corporation (NASDAQ:MSFT) decides on its next smartphone tactic, its Windows Phone operating system is continuing to make slow but measurable gains in the smartphone market, thanks to the latest market survey conducted by Kantar Worldpanel ComTech and reported by B2Bonline.com. Powered mostly by Nokia Corporation (ADR) (NYSE:NOK) Lumia handsets, Windows Phone improved to 3.5 percent of the U.S. smartphone market, up from 3 percent a year ago. Of the 5.5 percent of the market not controlled by Android of iOS, Windows Phone now takes up more than 60 percent of the market, while BlackBerry Ltd (NASDAQ:BBRY) has dropped from 1.9 percent in 2012 to 1 percent now in the overall market, or just 22 percent of the non-Android/iOS market share. By that math, Windows outpaces BlackBerry by 3 to 1 in the current market.
Do you still think that Microsoft Corporation (NASDAQ:MSFT) is in the market for BlackBerry Ltd (NASDAQ:BBRY)? If you were an investor in Microsoft stock, like fund managers Jeffrey Ubben or Jim Chanos, were you in support of the Nokia deal and would you encourage a BlackBerry buy? If you were a BlackBerry investor like fund managers Prem Watsa or Philippe Laffont, would you be happy with a Microsoft buyout of BlackBerry or would you rather see another company step up?
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
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