"Though <a company>’s intrinsic value cannot be precisely calculated, two of its three key pillars can be measured... The first component of value is our invest

"Though <a company>’s intrinsic value cannot be precisely calculated, two of its three key pillars can be measured... The first component of value is our investments: stocks, bonds and cash equivalents... <a company>'s second component of value is earnings that come from sources other than investments... There is a third, more subjective, element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future. We, as well as many other businesses, are likely to retain earnings over the next decade that will equal, or even exceed, the capital we presently employ. Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills. This “what-will-they-do-with-the-money” factor must always be evaluated along with the “what-do-we-have-now” calculation in order for us, or anybody, to arrive at a sensible estimate of a company’s intrinsic value. That’s because an outside investor stands by helplessly as management reinvests his share of the company’s earnings. If a CEO can be expected to do this job well, the reinvestment prospects add to the company’s current value; if the CEO’s talents or motives are suspect, today’s value must be discounted. The difference in outcome can be huge. A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton." - Warren Buffet, 2010 Letter to Shareholders Over the last ~10 years Microsoft has been good at #1, good at #2, but #3 has been suspect.