Tie Fighter was better, and it came after!

Most insurance companies pay out nearly all the premiums that they take in. They make money through their investment portfolios by taking advantage of the timing difference between premium payment and claim time.

Exactly. Intel is known as one of the few corporates who actually ramp up R&D in a down cycle, with the hope of capturing market share on the way out.

If you are interested there is a video of the CFO explaining their R&D philosophy on the Intel website.

Well written response, but the comment about CDS is not correct.

CDS are nothing but swap contracts or a transfer of incremental value from one party to another. There is 50trn of outstanding notional value in CDS but it isn't an indication of current cash at risk. It is nothing but an insurance contract.

Now, while there was silly insurance contracts written (the cause of the fall in the monoline insurers and AIG) the whole CDS market is not reflective of that. It is quite effective at moving risk from one party to another.

Confidence is at a low because people have realised that debt has accumulated to an unsustainable level. The deleveraging of the economy is painful, and we are lucky that we have good government to manage this process at a slower pace. What caused the great depression was that the deleveraging was not handled at a slower pace and the government (through lack of knowledge) encouraged the voracious repricing of risk at too fast a pace.

That is not really correct. Advertising is hardly an 'inefficiency' and it is not about tricking people into buying an inferior product. Advertising allows an individual to know more about the possible opportunities for them to allocate their capital. The advertised goods or services may result in greater utility derived than from spending on something else. For example if you see a certain holiday destination advertised it may result in greater enjoyment than would have been experienced if you went somewhere else.

Inefficiencies in capital markets are only derived from things like taxes and transaction costs. I suggest you re-read your microeconomic textbooks again!

I disagree, but my argument is that it really isn't easy for Microsoft to search out growth opportunities on a large scale. The console market seems to be one where Microsoft's size is a competitive advantage.

The amount of money we are talking about is peanuts anyway, $3bn is only 15% of one years cash flow for Microsoft.

All the other poster should be saying is that he doesn't believe the Xbox division will achieve a RoE that justifies it. That's fine if he believes that. But he shouldn't be saying that Microsoft is doing something wrong by keeping the division going...if they believe the RoE is there then they are totally doing the right thing by keeping the division going! This is what I am arguing against. Microsoft aren't doing anything wrong -- it is just that their views differ.

I suspect that he wouldn't have a clue what sort of growth Xbox can achieve, and what boost it can provide to other products Microsoft provides. That's why I would probably side with Microsoft here.

Firstly, revenues don't get paid out from revenues, they get paid from after tax profit.

Secondly shutting down a division after absorbing the sunk cost of setting it up would upset a number of shareholders as you have effectively thrown away those 'billions of dollars'. They've set up a division that is now profitable and that you could pretty easily justify the good growth in that profit given the product which they have in the market.

If you were a shareholder given your attitude you would have dumped your stock on announcement of the xbox project. If, on the other hand, you were an investor that wanted Microsoft to pursue growth options and effectively use their capital at hand you would support the xbox project.

But your argument of shutting it down now makes no sense what so ever. If you were a shareholder that just wanted no growth and big dividends you would have sold out already, but if you are still in there and only complaining NOW when the division is turning a profit, anyone would look at you thinking "what the hell is this guy on about?"

This is exactly what investment is all about. But what you fail to understand is that not only will the profit persist, but it will probably grow. I couldn't think of a project set up by any company that didn't require up front sunk cost to implement. The fun in financial modeling is getting the future cash flows positive so that there is a positive return on initial investment. Microsoft seem to be making that happen. As a shareholder, I would be happy with that outcome.

I had to pull out the hip waders for this thread.

Folding vs SETI isn't about weighing the importance of curing cancer versus finding aliens. It's an argument about using resources for a useful research tool versus using resources on a horribly inefficiently process which may not even be capable of finding what it's looking for.

You could use the investing money versus playing the lottery analogy, but it's really like comparing investing money versus digging through people's trash looking for a winning lottery ticket.