Name That Company

I have 30,000 restaurants in 121 countries, with about 13,000 in the United States. I serve more than 45 million people each day and employ 1.5 million. Moscow’s Pushkin Square sports one of my busiest stores. Fortune Magazine named me No. 1 for social responsibility. I’m busy cutting fat from my offerings. I use more than 3 million pounds of potatoes per day. My spokesman’s shoes are size 14 1/2 and he helps sick kids. More than 37 percent of my American owner/operators are women and minorities. Who am I? (Answer: McDonald’s)

Know the answer? Send it to us with Foolish Trivia on the top and you’ll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

The Fool Take
Microsoft earns respect

Software giant Microsoft (Nasdaq: MSFT) recently reported blowout earnings. In the midst of a major technology spending slowdown, the company increased revenue by 26 percent and pre-tax operating income by 40 percent. Wow.

Contributing to the strong growth was the company’s switch to annual subscription-based pricing for its software, which began in July. Microsoft’s large business clients were “motivated” to switch to the subscription plan, or risk facing much higher prices when they renewed their licenses. Such strong-arm tactics caused consternation among many customers, but they paid up. That’s the power of a monopoly, and that’s why Microsoft is underrated.

This new annual-fee software pricing positions the company to deliver very reliable revenues and earnings in the years ahead. Whether Microsoft has a major innovation or not, money will keep rolling in. It’s an investor’s dream come true: a predictable, rising earnings stream.

Microsoft’s fiscal 2002 revenues came in 12.1 percent higher than fiscal 2001, which topped 2000 by 10.2 percent. Looking ahead, Microsoft expects 2003 to top 2002 by 14.2 percent. In other words, revenue growth is accelerating.

Recently priced in the mid $50s, Microsoft stock trades for 19 times free cash flow. But subtract the nearly $10 per share of cash and investments in the company coffers, and that 19 becomes 15.5. For a company with almost unparalleled dominance, that’s a reasonable price to pay.

Dumb investment
Black gold . . . almost

In 1949 our first daughter was born, and we wanted to buy her something special. We decided on one share of my employer’s common stock, Continental Oil (trading around $30 per share, as I recall), as that was all we could afford. We went to a local broker in Enid, Okla., who advised against this and recommended a U.S. Savings Bond. I don’t even want to know what that one share would be worth now. – George R. McNeil, Tucson, Ariz.

The Fool Responds: Your instinct to make a long-term investment in the stock market was good. The Continental Oil Co. became Conoco. It was bought by DuPont in 1981 and then spun off in 1998. The company’s market capitalization today tops $15 billion. That’s big, but it’s still small potatoes next to ExxonMobil’s $230 billion and ChevronTexaco (nearly $80 billion). Bonds sometimes do make sense, and you can learn more about them at www.vanguard.com/cgi-bin/NewsPrint/964194802. But for long-term moolah, the stock market is usually the best place. Consider buying shares of an index fund for your grandchildren!

The Fool School
Just say no to market timing

Many financial gurus engage in market timing, predicting when the market will surge or crash, advising others to buy or sell “now.” Unfortunately, they’re usually wrong. No one can consistently and accurately know what the market will do in the short term. In the long term, though, the trend is clear: The market rises.

Shedding light on market timing is a study conducted by University of Michigan finance professor H. Nejat Seyhun for Towneley Capital Management. He first noted that an investment held in the stock market from 1963 through 1993 (7,802 business days) would have yielded a solid average annual return of 11.83 percent. But here’s the amazing part. He found that if you were out of the market (not invested in it) for the 10 days when the market rose the most, your average annual return would only be 10.17 percent. If you sat out the 90 best days, you’d be down to a mere 3.28 percent.

Much of the market’s gains can occur on just a few days. So anyone who tries to time the market risks missing out on substantial gains. Some will argue that by being out of the market on the worst days, you’ll improve your returns – but no one is consistently able to correctly predict when those worst days will occur.

Many people are market timers without even realizing it. They may mean to hold onto a solid investment for the long run, but after a relatively short period of lackluster performance, they lose faith and sell, moving into another short-term holding. To combat this tendency, take the time to learn more about how you’re investing. Have confidence in your plan.

Over the long run, it’s usually more hazardous to your wealth to be out of the stock market than to be in it.

By hanging on, you’ll be in the market on days when it counts, able to ride out occasional downturns. A great strategy is to regularly invest in the market, no matter whether it’s up or down, perhaps through an index fund. Learn more about market timing at http://moneycentral .msn.com/content/P18323.asp and www.suite101.com/article.cfm/270/92707.