104.82 -4.2 (-4.0%) Sell

Stop-loss on the minds of MSFT investors as it delivered massive losses

13 min read

MICROSOFT CORP is a falling knife that can bleed you if you catch it on Friday. It lost -4.0% to close at 104.82. It is currently trading +23% above it's 52 week low of 84.69 and is down only -9% from it's 52 week high.

[Themes containing MSFT]

Buy-and-Hold investors in MSFT experienced a maximum drawdown of -12.02% over the last three months. It lost -4.17% during this down trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +1.26%.


MSFT has been underperforming the SP500 index in recent time, after having outperformed till 28 Nov, 2018. Over the last 2 years 11 months and 3 days, MSFT outperformed the SP500 index on 57% days.

MSFT was profitable on 50% days in the last three months. During this time, it delivered on average -0.05% per day. It delivered it's best daily return of +5.84%, during this period, on Thursday, 25 Oct, 2018. There was initially a bullish trend during this period which started on 10 Sep, 2018 and went on till 14 Sep, 2018. The bullish trend returned +3.6% to investors. This was followed by a bearish trend that started on 4 Oct, 2018 and ended on 8 Oct, 2018. This bearish trend lost -3.8% of investor capital.

MSFT had 7 profitable and 5 loss making months over the last year. During the last year, MSFT underperformed SP500 index on monthly return basis. MSFT significantly outperformed SP500 index in Jan 2018, when it returned +10.54% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. MSFT had a shorter streak of profitable months than SP500 index. It only went up in 3 straight months during the last year. It is interesting to note that both MSFT and SP500 index significantly outperform during months when quarterly/annual results are announced.

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
-- Warren Buffett

MSFT is becoming more volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in MSFT's volatility from 3 Oct, 2018 to 30 Oct, 2018. While there was a significant surge in the SP500 index's volatility from 10 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that MSFT has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.

Investors trading in MSFT derivatives at this moment can consider 'Bull Call Spread' options strategy to receive better risk-adjusted returns.

SP500 index has more chance of extreme outcomes than MSFT. Therefore, SP500 must receive a lower allocation than MSFT in your portfolio. SP500 index usually has shorter drawdown period than MSFT.

On a general note (since you are interested in MSFT), three small cap instruments that deserve special mention are ZBRA, HQY and BURL. They have all outperformed the market and must be closely watched for investment opportunities.

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