Alpesh B Patel explains when to buy Microsoft stock on dips: a 33% decline would trigger him to increase his position, supported by historical rebounds and current valuations near 2017 lows. He stresses annual rebalancing to keep it at 5% of a diversified portfolio and warns against single-stock risk.
I think if that drops 33%, I'd be very interested to buy more and I'll make a bloody killing. But how do you decide which are quality companies? Okay, so if they then fall, what do you do, Alpesh? Well, if you're rebalancing once a year and now Microsoft is only 2.5% of your portfolio and you've got 20 stocks and you want it, you bring it back to 5% each. It can drop 33%. This isn't guaranteed, but statistically you can see those drops. Well, what's the buy the dip number for Microsoft? I think if that drops 33%, I'd be very interested to buy more. And I'll make a bloody killing because statistically it tends to go up and its value, growth, income, cash flow, Sortino, all fit. Has that happened before? 23% drops. It's not the drop that's making me buy it. It's the fact that value, growth, income, cash flow, 35%, 20+ percent. Where are we at the moment? 33%. Could it fall more? Its valuation is at 2017 levels. That's the price earnings ratio down here. The price is near 2021 levels. Those are not two reasons to buy because the hypothesis I just gave you is if valuation is near multi-year lows, should you buy? Although you could by looking at the screen, eyeball it and say, bloody hell, shit, of course you should. Steep falls hypothesis. If it gets a drop of 35%, should you buy? Well, there's some statistical evidence to suggest that hypothesis is proven by data. But actually what we prefer doing is value, growth, income, cash flow, and all of those things I just told you. Okay, so what am I looking at for Microsoft? I'm looking to double my money in the next 3 years on it. That is not a recommendation for you to buy because what? My risk capacity might be different to yours and you'd never take single stock risk. So if you think that, Alpesh B Patel OBE, why don't you put all your money in Microsoft? Because I won't take single stock risk. What if there's accounting fraud that I don't know about? Same issue that I've just described goes with Meta. Why do we have more than one stock? 80% of your profits will come from 20% of your stocks. So my Qualcomm and my AMD and my Broadcom and my Micron, if I knew Micron was going to do that much, I would have bloody bought all of that. Why didn't I just buy tech companies or just put— I wish I put everything in SanDisk. I've only got 2.5% in SanDisk and Western Digital. Between Western Digital, SanDisk, I think it's about 20% of the bloody portfolio and it needs to be rebalanced back down. Well, I don't want single stock overexposure. The profitability has been really good.
