A Prescriptive for Today's Turbulent Markets? Cool Heads Prevail.

Every day brings some other piece of bad news. This lender is in trouble, this economic statistic looks bad, sentiment is poor, etc. These are times when it is best to adopt the Warren Buffet posture - avoid CNBC, Wall Street chatter and all forms of PR-driven hysteria. If we could move to Omaha, we'd all be better off at times like these. Because at the end of the day, all the current news cycle does is play on our human weaknesses and tempt us to make perverse decisions. Like selling out of fear. Like bailing out of perfectly good equities and fixed-income securities because of generalizing problems across individual securities and asset classes. And this is why most investors are poor at being active managers while a precious few take advantage of this phenomenon to feast on the rest of us.

It is what it is, I guess. But I am here to suggest that you not give into fear and uncertainty, but to keep a level head and to evaluate your portfolio and your prospects using data and facts, not suspicion and conjecture. I know this is hard, believe me. It is "gut check" time when you see the DJIA drop 300, Asia crater shortly thereafter and you can't pick up a newspaper anywhere around the globe without hearing of the subprime meltdown, hedge fund redemptions and a scared and jittery Fed. But like I wrote previously, it is the contra-instinct that is likely your best guide right now. George Costanza had it right. Do the opposite.

My best guess is that things will be pretty ugly for the next 12-18 months. I don't anticipate that the market will crater, but I do think the ripple effects of troubles with mortgage securities and the real estate sector will have far-reaching effects, and cause an economic adjustment that will be painful and time consuming. If bad credits default and good credits can't get mortgage loans, and there is a glut of real property flooding the market that will be liquidated for cents on the dollar in distress, and all those consumer durables filling those homes won't be filling them any more, and Home Depot and the like won't be selling as many building supplies, and consumer confidence weakens, etc., this is not a pretty picture. But I believe that there will be two constituencies that will flourish in the near- and medium-term in the wake of today's markets - those with the intestinal fortitude to hold on to good assets that the market is discounting now but will reward later, and value-oriented long/short hedge fund managers.

I think we'll be entering a stock-pickers market, one where those with a deep-value orientation and stock-picking skill will shine. The cream rises to the top in uncertain times, where margins of safety are large and actual performance and returns on invested capital carry the day. My hypothesis is that the top long/short managers that have been running 100/40 long/short books will become much flatter, much less net-long, and revert to 80/60-type positions where conviction and analysis rule. I may be wrong, but it feels like a time similar to the early 2000s when top long/short managers just ripped it while the tech bubble was deflating. Time will tell, but this is my "blink" visceral reaction to the goings on. To the extent you can, act like one of these hedge fund managers. Keep a cool head. Really get a grip on your portfolio. And don't do anything rash. Because there are a group of smart, opportunistic, dispassionate people out there ready to take the other side of the trade and eat your lunch.

Prioritizing the Development Pipeline: Listening to the Will of the People

I run a technology start-up. One of the things we grapple with is choosing what to build next. Is it this feature or that? This product extension or that feature enhancement? It is a hard, hard problem. In our business, it is the distilling of human customer feedback that governs pipeline prioritization, which is the way it should be. But it is an uncomfortable melding of art and science that is not wholly satisfying to one more empirically inclined. So consider a world where you could extract sentiment from a large pool of people to help guide your decision-making, where empiricism, pragmatism and speed come together to help make good decisions quickly. Sounds pretty cool, right? This is yet another example of what can be accomplished by leveraging the Internet.

Consider this example as described in today's New York Times:

Users of Facebook, the social networking service, make up for any shortcomings in spelling, grammar and punctuation with their sheer numbers. After nearly 14,000 people joined “bring back Wispa” groups on Facebook, the food conglomerate Cadbury Schweppes announced on Aug. 17 that it would reintroduce the candy bar in October.

Companies everywhere are monitoring blogs and other online discussions for feedback on their brands and providing them with information about coming products, as well as placing so-called viral advertisements on video-sharing sites. But the company insisted that the expressions of affection for Wispa on the Internet were genuine.

The campaign for Wispa, and the decision by Cadbury to revive it, shows what can happen when nostalgia about lost brands converges with user-generated content and social networking sites.http://www.typepad.com/t/app/weblog/post?blog_id=375671

“This is the first time that the power of the Internet played such an intrinsic role in the return of a Cadbury brand,” the company said.

Cadbury said it had identified 93 user groups on Facebook calling for a return of Wispa. Fans posted video clips from 1980s advertisements for Wispa, featuring stars of British television shows like “Hi-de-Hi!” and “Yes Minister,” on YouTube, the video-sharing Web site.

This is totally amazing on so many fronts. That the Internet could have such an impact on corporate strategy. That Cadbury, an established, old-line company, could be as forward-looking as to consider such input in a product development decision. At infinity, there is no doubt that using the Law of Large Numbers as a tool for selecting product development initiatives is the way to go. It is just hard, in real life, to find situations such as these. My guess is that we'll see more of this - and soon. And that product managers the world over will be thanking their lucky stars that the power of the Internet is in full bloom - and only getting more robust with time.

The New York Venture Scene is Rocking!

As both an active angel investor and entrepreneur, I can say one thing for sure: macroeconomic woes aside, the New York early-stage investment scene is vibrant, exciting, and full of possibilities. I have seen more interesting deals with strong business models than any time over the past three years: deal quality is just getting better. And the kinds of deals I've been seeing and working on have been concentrated in four key sectors: digital media, social media, gaming and financial technology. What I can say is that video is booming; monetizing the wonder that is Facebook is only picking up steam; the dedication, passion and monies spent by gamers is getting increased attention; and that making money from those with money is a time-honored passion and one that is a key focus in today's market.

I'll write more shortly about my own personal investment activities, but I felt compelled to share my perceptions of what is going on across Silicon Alley. The energy spanning the New York venture scene is palpable. I am excited to see it continue and pick up momentum. I'd love to hear about what you're seeing as well.

Pier 40: A Jewel for the Downtown Community, NYC and Children Everywhere

For those of you who are unaware, Pier 40 is a 15 acre site on the Hudson River located just west of Greenwich Village in Downtown NYC. While some of its space is used to provide low-cost parking, most of its square footage is devoted to playing fields that serve much of the Downtown community. Park space is disappearing as commercial and residential development takes hold, and Pier 40 is one of the most valuable remaining open spaces suitable for playing fields.

Problem is, a broken process to solicit proposals for developing Pier 40 have put the community and NYC in the position of possibly facing a seriously flawed project from the Related Companies. The Related proposal would turn the most desirable playing fields into a permanent installation for Cirque de Soleil, movie theaters, restaurants and other non park-like activities. Now I love New York for its food, movies and performances, but I can tell you that these three things are far more abundant than playing fields, and can be situated in many more places than the open space required for multiple baseball diamonds, soccer and football fields. The prospect of taking Pier 40 away from its highest and best use - active recreation space for the benefit of Hudson River Park, the Downtown community and all of NYC - is too sad for words.

Rather then get depressed and weepy, a group of concerned community, business and civic leaders banded together to form the Pier 40 Partnership. The group's formation was catalyzed by a community hearing on May 3rd to discuss the development proposals, which was attended by over 2,000 concerned citizens.  We have been meeting with City and State Government officials to make our case, and have already garnered significant contributions towards a private-public partnership to support the right development project for Pier 40. Fred Wilson, who is also involved with Pier 40 Partnership and set up the group's website, has a terrific post on Pier 40 as well. If you want to get involved, please drop me a note and I'll help figure out how to make it happen.

Can Facebook Become THE Uber App? Yes.

I know, I know. Yet another take on Facebook, and this from a slightly long-in-the-tooth, techno Johnny-come-lately. But hear me out, because as a new-comer to the community and one who is clearly NOT representative of its core demographic, I see a way that it could bridge the gap among friends, family and professional relationships while preserving privacy and access on an as-desired basis. And this, from my perspective, could make Facebook THE killer app for all forms of social network management:

Provide the ability to create three sub-profiles, personal, family and work, the contents of which are tagged and stored in a master profile but which are only displayed pursuant to their tags. Provide full integration with LinkedIn with a revenue sharing model, and we'd see LinkedIn use skyrocket by bringing Facebook users into the fold while Facebook could tap into the attractive mature professional demographic that would deepen its data and add valuable, high CPC eyeballs to its user base. Finally, add full email integration in order to open up the messaging layer and facilitate integration with legacy email accounts.

It seems to me that the principal value of Facebook to its users, as with most online applications, is data. My accumulated data. The data I may have taken years to build. Pictures, contacts, notes, groups, etc. Just as with a gamer who has built an identity in WoW and acquired powers and stuff, the legacy one has painstakingly constructed has immense value. The difference, however, is that while a gamer's identity is fungible, i.e., you can sell your identity, tools, powers, etc. in the market, one's personal identity is not.  This is why Facebook and apps like it, say LinkedIn, where enormous personal investment happens over long periods of time, create stickiness and have the potential for annuitized revenue like none other. And as one moves from crazy college co-ed to buttoned-down professional, it is hard to stomach (if not completely unacceptable) tossing out one's Facebook identity simply because of some youthful escapades that might not look too good when scrutinized as part of a background check. But this is a harsh reality. HR departments can and do go to Facebook to check out stuff on new hires; the cat is out of the bag on that one.

But while Facebook in college and shortly thereafter is a great way to remain connected to friends and keep them apprised of your goings on, it can quickly become a powerful business networking tool as one moves into the workforce and enters the next phase of life. But what about the problem of those embarrassing pictures from that tequila-fueled toga fest from when you were 19 years old on your profile? How about tagging all that stuff "Personal," and only permitting certain types of friends to access this profile? Wouldn't that be great? For me this isn't an issue, since I was already a (relatively) mature guy by the time I got on Facebook (one month ago), and I don't have any such pictures on my profile (fortunately digital photography was a glimmer in someone's eye when I was in undergrad), but for those, say, two decades younger than me this is a real and serious issue. And what about family? Some may not want their moms, dads and Aunt Hildas checking out such Facebook content (should Aunt Hilda be surfing the web and digging for dirt). In fact, one may want a more sanitized version of their Personal profile to be available for viewing by Family members. This would seem to make sense as well.

And then there's work. I use LinkedIn. I use Facebook. I personally want one app, one place where I can manage my social networks. LinkedIn is a great tool, but its social networking functionality, look and feel pretty much stink. Facebook provides a far richer, deeper, more dynamic and meaningful experience, one that I find very valuable in my professional life. Let's get them together. Let me import my LinkedIn contacts into Facebook, into a profile called Professional. I don't want to start building up a contacts database de novo by using one of the available Facebook apps - I want all my LinkedIn information incorporated into my Facebook profile. Now. These are two great companies with two great user bases that, over time, should meld into one. Let's get the ball rolling. Today's high schoolers will be in the work force in five years. Today's college students less than that. These are the future Professional users. Let's lay the foundation for them to build and manage three sub-profiles by implementing a tagging layer to separate one's spheres - Personal, Family and Professional. To me it makes all the sense in the world. Now I just need for Mark Zuckerberg to hear my call.

I'm sure I'm the 7,453th person to come up with these ideas. I just haven't read them. But I do think they make common sense and would cement Facebook's primacy as THE social networking platform. But they gotta open it up, adopt a more comprehensive view of one's life and social networks and facilitate the tagging of data to create these sub-profiles. I've got to believe that legacy Facebook users would love the comfort of knowing that they could safely add to their profiles without risking their jobs or freaking out their families. And isn't this what identity management is all about?

A Few Thoughts on Market Dislocations

The events over the past few months have been fascinating, at least when taking a clinical view of things. It is like a slow-motion train wreck where the force of the collision spreads detritus all across the landscape. Is this like LTCM? No. Is this the emerging markets debt crisis redux? No. Did legacy government policies contribute to a real-estate bubble that has seemed poised to pop for years? Yes. The current crisis is, in fact, a contagion, where Wall Street and Main Street are inextricably linked in a complex web of relationships that only time and suffering will help untangle. And do we have Alan Greenspan sitting in his exalted perch pulling strings and lending confidence and authority behind the scenes? No. And this is part of what makes this story so compelling.

What are some of the factors that make this market meltdown so, well, intriguing?

Quasi-governmental agencies competing with the private sector: Long story short, it seems to me that Congress let FNMA and FHLMC get way, way too big, doing business well beyond their original charter. They used an implicit government guarantee to provide ready credit to too many homeowners, and fostered a competitive landscape that placed origination volume over loan quality, the problems of which we are dealing with today.

Rating agencies not imagining beyond their Monte Carlo simulations: Investors rely heavily on ratings. Issuers pay rating agencies lots of money to validate their securities, which, on its face is a conflict of interest. Well, let's forget about that for the moment. Getting back to ratings quality, what is the purpose of having ratings if they are adjusted post-facto? Isn't this kind of like Wall Street sell-side analysts putting a Sell rating on a stock after they whiff on earnings, when they previously had a Buy rating on it? And this happens every day. Boo.

Leverage, leverage everywhere: Homeowners. Securitized vehicles. Investors. With leverage comes reduced margin for error, and with error comes pain. The issue is that the pain incurred does not move linearly, it moves exponentially. Once the pain starts happening, its effects ripple outward, often swallowing everything in its path. With a leveraged portfolio, a normal drop hurts, but isn't fatal. However, when the drop moves beyond normal, beyond the expected, the investor is asked for more collateral, which causes further downward pressure on portfolio value as liquidations are needed to make margin calls. But as more securities are sold in a rapidly declining market bids start to fall away, committing the leveraged investor to months in purgatory, working out a busted book. And what about homeowners? As adjustable rate mortgages get reset sharply upward and payments can't be made, remember the value of that equity in a home? Poof. Now what if that happens 1,000, 100,000, a million times or more? All those real assets flooding the market? There is no bid. Which causes builders' inventory to crater, which kills their stock prices, which hurts investors' portfolios, consumer demand, etc. It just goes on and on.

A rookie running the Fed: I don't envy Mr. Bernanke. Not for a minute. His wealth of deeply-felt, academically-grounded views and best of intentions by seeking to avoid the "moral hazard" of a Fed put all went out the window in less then a week. There is nothing more hazardous to one's professional reputation than being at the helm of a true market Chernobyl, especially when you were just given the keys to the reactor, but this is what Ben is facing early in his tenure. He was (and still is) staring at a liquidity crunch right in the face, challenging it to a game of "who'll blink first," and he lost. And fast. Notwithstanding my leanings towards letting the chips fall where they may and letting those who made bad and irresponsible decisions get smoked, Mr. Bernanke made the only decision he really could make. Even if it went directly against statements he made earlier in the month concerning his focus on inflation pressures and, therefore, stable to higher - not lower - interest rates. Water under the bridge. He's learning. Dust him off, wind him up and he'll be ready for the next (read: inevitable) series of crises during his tenure.

A pro running the Treasury: As much as Mr. Bernanke is grounded in academia, Mr. Paulson is steeped in global financial realities. The academic vs. the pragmatist. They are really great foils for each other, especially at a time like this. While Mr. Bernanke is clearly the bell of the ball of the global financial markets, there can be little doubt that notwithstanding Treasury Secretary Paulson's low profile during this crisis, he is having an influence on Fed thinking. He spent a career at one of the most successful and deft global financial powerhouses, leading part of the charge during its worldwide expansion. Let me tell you, it makes me a lot more comfortable knowing that Hank is back there providing his two cents to Ben and his Fed pals, because he knows the way it is, not the way it should be as depicted in Ph.D dissertations and textbooks. In another few years, Hank and Ben could be a virtual "dream team," the princes of theory and practice side-by-side. Nice.

I think we are in the early innings of a global financial de-leveraging that will necessarily take place, and it will be the skill of those like Messrs. Bernanke and Paulson along with their EU and Asian colleagues that will dictate how the air is let out of the bubble. Moral hazard sucks, and we are right in the midst of some pretty morally hazardous stuff taking place from a policy perspective. Certain firms and investors will be bailed out though they shouldn't be, but net net, the impact of letting them go may well be far worse then showing the financial community that the Bernanke Fed will not be issuing put options as the Greenspan Fed did. There are times and places for making points, grand, sweeping points, but this is not one of them. The next twelve months should be challenging for investors across many if not most asset classes, and it is largely due to the government messing things up and then trying to fix them post-facto. And this is the real hazard that should be driving the discussion.

Retail vs. Institutional Investors: Compare and Contrast

My recent post concerning the challenges of being a retail investor, especially when using strategies and approaches generally the province of Institutional Investors, caused quite an (unintended) stir. My piece was designed to highlight the risks associated with being a retail investor and wading into complex territory, and to make a recommendation for keeping the core of one's strategy brutually simple (and cost-efficient) while leaving some room to stretch for outperformance. A common thread running through the more critical comments I received were of the nature "Well, how can you write this when Institutional investors (read: hedge funds) have been doing incredibly stupid things and losing boatloads of money? Isn't it arrogant of you to say that retail has problems when institutions have plenty of problems of their own?" Answer: yes I can write this and and no it's not arrogant - they are two different issues entirely. But since I clearly left some ambiguity on the table, let me clarify and be more precise about a few things:

1. When I say "retail investor," I mean an individual for whom investing is not a full-time vocation; it is a necessity and/or a hobby;

2. Institutional investors are those for whom investing is a full-time vocation, enabling them to spend more time doing research then even the most talented of retail investors. Further, most Institutional investors make a goodly living off their vocation;

3. When I discuss the frailties of humans as investors, they apply to both retail and Institutional investors; it is only that a small subset of investors. be they retail or Institutional, have the ability to overcome these frailties; and

4. When I talk about discipline, the challenges of remaining consistent and sound in one's strategy applies equally to both retail and Institutional investors.

Ergo, carrying a card that reads "Institutional Investor" does not somehow imbue you with skills and abilities that automatically make you successful, just as being labeled "retail" does not, by definition, correspond to the word "idiot." My belief is that almost all investors, be they retail or Institutional by stripe, are not good. Those who can generate true, sustained, statistically-significant outperformance over long periods of time are rare. No, more than rare. But I care less about the failures of Institutional investors as people because they, quite frankly, make a lot of money as a group, while retail investors span the economic strata. This is why I choose to write about retail and my wish for them, as a group, to think smart, be humble, and take a rational and serious (read: "This is not fun - this is business") approach to investing. If this is arrogant, so be it. Excuse me. But I think someone without a vested interest needs to write this stuff because it is a perspective too often lost amidst the hype.

Retail Investors + Complex Investments = Failure

I feel like Will Ferrell in The Wedding Crashers uttering his signature line, "What is she doing back there?" The only difference is that he is wondering when his meat loaf is coming while I am pondering when retail investors are going to wake up and adopt a realistic view of their investment abilities. I'm sure Will's ma brought that meat loaf a hell of a lot faster than most retail investors will say, "You know what, I'm not as smart as I think I am. Smart investing is pretty complicated and is a serious business." As IA readers know, idiot retail investment ideas and approaches are a pet peeve of mine and drive me absolutely bonkers, and my ire was raised to a fever pitch when reading a thoroughly disgusting article in Tuesday's Wall Street Journal titled Small Investors, Too, Get Nailed by Arcane Trades. I have only one simple question upon hearing this news: WHY???

So glad you asked. Here are my theories (in no particular order):

1. Hubris
2. Greed
3. Stupidity
4. Fear
5. Lack of knowledge
6. Because most humans are wired to make dumb investment decisions

When I hear of retail investors engaging in multi-legged option strategies, trading foreign exchange and commodities and shorting stocks, I cringe. How many lumps are people going to require to wake up and grow a little humility? I get it - the psychological phenomenon, that is - but I DON'T GET IT. There have been countless stories documenting the sheer idiocy of so many retail investors, being in way over their head and getting killed. So why do people continue making the same mistakes? For the exact opposite reason of why Warren Buffett really is a once-in-a-generation type investor: discipline.

Discipline, especially when it goes against one's native instincts, is hard. When your friend brags about a particular stock or strategy on the golf course, you are jealous, right? And when you hear stories of people making tons in _____ (choose your era - tech stocks, commodities, currencies, gold, etc.), regardless of a lack of documentation (self-reporting is notoriously poor as people tend to remember wins and forget losses), you want in, right? It is very hard to be the tortoise when you are seemingly surrounded by hares. But you know what, you can try your hand a bit if you adhere to a few simple guidelines:

1. Set an asset allocation mix that makes sense for your age, stage, family circumstance, etc. If you can't do this with confidence get some help;
2. Establish the majority of your allocation using low-cost, liquid instruments like index funds and ETFs;
3. Figure out if you want to try and dicker with investing at all, and if the answer is yes;
4. Limit your "play money" to 5-10% of your total portfolio.

By all means have some fun. Do some research. Collaborate with others. Try and generate some real alpha. But don't, DON'T have this be the core of your investment strategy. Please. Don't. Do. It. If you follow my advice you can get the high of investing without running the risk of an overdose. Because an overdose can kill you.

Making Your Mark on the Street: Taking the Road Less Traveled

I take a lot of crap from my Wall Street-oriented readers for writing too much about gaming, technology, etc., and not enough about my experiences on the Street. So, it is in that spirit that I share some thoughts with you on how to differentiate yourself, how to separate yourself from the pack as you are building your career. Wall Street, its training programs and implicit mentoring system pushes for conformity, for the development of a set of core skills that you can apply in your area of focus. In fact, one's skill set can be significantly impacted by the mentor whom you chose or who chooses you, taking a pretty large measure of control away from you. Now, developing a solid tool-kit is absolutely critical for success, don't get me wrong. But there is a big difference between competing both internally (with your peers) and externally (in client turf battles) on the same playing field, versus changing the field entirely. Huh? What I mean is the following:

By playing the game the way it has historically been defined, you are limiting yourself to only marginal victories versus your competition. The only degrees of freedom are those of sheer intellect and skill (of which there is little variation across the top tier firms) and those of firm quality and reputation (which is meaningful but whose impact can be overcome through intellect and skill). The key to scoring big wins is by changing the game entirely.

As I think about it, this is not entirely dissimilar from what Nintendo has done with the Wii. Instead of getting into a feature and functionality war with Sony and Microsoft, Nintendo said "We're playing a different game. And that game is ease of use and fun for gamers of all levels." And because of this, they have expanded the gaming pie, and captured an extremely large and valuable piece of this enlarged pie. An analogy in my career was established early on in derivatives, when I decided to apply a different approach to the marketing and design of derivative strategies: applying a value-driven, corporate finance framework to hedging programs. My background prior to entering derivatives was in M&A, so I understood the principles and techniques of security valuation. This was not a skill commonly held by those in derivatives in the early 1990s. Most successful derivatives transactors were more product-oriented, super-bright but very focused on designing the most creative and valuable strategies in a vacuum. This was neither an area of competitive advantage for me nor an approach that resonated with me, so I decided to try something different - using firm value and Economic Value-Added as yardsticks for whether a risk management strategy made sense or not.

Seems pretty basic, right? Well, in the early 1990s it wasn't very common. I was speaking a different language to many of the Treasurers and CFOs with whom I interacted, a language that they understood far better than what many of the more experienced product-driven derivatives pros were speaking. My approach also made my strategies more easily salable to Boards of Directors, as approaches that demonstrably reduced risk and/or increased firm value were hard to dispute. And this new playing field enabled me to carve out a niche in the corporate derivatives business very quickly, building a franchise that I was able to leverage and parlay into high-value client relationships for over a decade. From my perspective I was doing something that was good for my clients, good for my firm and good for myself. It was fun. It was exciting. I felt good about the advice I was giving. And it was, for a meaningful period of time, quite different than what the competition was pitching.

Was this a "disruptive technology" in Clay Christensen-speak? Probably not. But by taking the road less traveled, by taking a chance on re-defining the game, it made all the difference in my career.

Selling Stock When Bad News is Coming? Bad, Bad Form

Microsoft's Xbox 360 extended warranty announcement, which carried a $1.15 billion charge to earnings along with it, was certainly not good news for the company or the H&E Division. One might even call a charge of this magnitude material, even for a company of Microsoft's heft. This means, as a matter of both prudence and law, that one shouldn't be selling in advance of such news if someone is in possession of material non-public information. Then what on earth is going on when the a person intimately tied to such an announcement, say, the President of the H&E Division, sells a goodly chunk of stock shortly before such an announcement is made public? From today's GameDaily BIZ:

Last month, we reported that President of Microsoft's Entertainment & Devices Division, Robbie Bach, sold off roughly $6.2 million in company stock prior to the Xbox 360 warranty extension, which cost Microsoft $1.15 billion.

As it turns out, however, according to a report from MarketWatch, Bach actually sold $3 million more in stock than was previously reported. Bach sold just over $3 million worth of company stock on May 1, but Microsoft spokesman Eric Hollreiser said the additional $3 million in sales were not registered in a timely manner with the SEC "as the result of an administrative error."

Just as before with Bach previous stock sale, Hollreiser said that the additional $3 million was completely unrelated to Microsoft's Xbox 360 repair announcement.

Now given the legal and compliance controls and infrastructure in place at Microsoft, I am virtually certain Mr. Bach's actions were within the letter of the law. It appears that there was around a two month time lag between the stock sales and the warranty announcement. That said, legal implications aside, this smells bad. Were I a MSFT investor (which I am not), how would it make me feel. Two words: pissed off.  Now the announcement only dropped the stock around 1.5%, but is that the point? You've got to believe that such a big decision on the part of Microsoft (the warranty charge decision) had to have percolated over several weeks, and had to have included Mr. Bach at the table. If this is the case, then isn't it better to be overly prudent and cautious and to black out such an executive from trading company shares? I'd think so. But hey, that's just me.