Bill Gates Dumping Microsoft Shares

Over the past 12 months, Chairman Bill has sold off 90 million shares in the company he co-founded. Does he think it's become that bad an investment?

Maybe he's not impressed with its tablet strategy.

Microsoft chairman Bill Gates is continuing to sell shares in the company at a rate that might set off alarm bells for some investors. Regulatory documents filed Monday show that Gates sold 5 million shares on Feb. 3, and documents filed last Friday reveal that he sold an additional 5 million on Feb. 2.

The moves follow a year in which Gates aggressively pared back his Microsoft holdings. SEC records reviewed by InformationWeek show that, in the past 12 months, Gates has sold off a whopping 90 million shares'reducing his holdings of Microsoft common stock by 13%. Over the past two years, Gates has cut his interest in the company he co-founded by about 22% through more than a dozen separate transactions.

Gates now holds roughly 591 million Microsoft shares, or about 7% of the 8.4 billion shares outstanding, and remains its largest single stockholder.

While some critics might point to Windows Vista or the KIN phone as proof that Microsoft has become a garbage-in, garbage-out software company, Gates now seems to be more interested in garbage, literally. Of late, he's been snapping up shares in relatively obscure outfits like Las Vegas-based Republic Services, which describes itself as a provider of "industry-leading solid waste and environmental services."

What's behind the selloff? In the past, Microsoft officials have said that, like all smart investors, Gates is simply diversifying his holdings. It's also true that Gates' personal interests now extend well beyond computing; he has committed billions of dollars of his fortune to causes such as malaria eradication through The Bill & Melinda Gates Foundation. That cash has to come from somewhere.

But it's also presumably true that, like most investors, Gates wants to see a decent return on his money'and Microsoft these days isn't the place to get it. If you invested one dollar in Microsoft in 2001 and cashed out that holding today, your compound annual return over the five-year period would be a measly 2.74%.

That same dollar invested in Apple would have returned 38.8% annually over the half decade, in Google the payback would have been 11.12%, in Oracle 30%, and in IBM 17.37%. (Who knew, without checking, that IBM and Oracle were better investments than Google over the past five years.)

Proving the efficient market theory, Microsoft's share stagnation is coincident with its paralysis in key new sectors like phones, tablets, search, and social networking. I've harped on those points previously, so there's no point rehashing them here.

What's new is that CEO Steve Ballmer, Microsoft's second largest shareholder, may finally have had enough of seeing his company play also-ran to the latest new kid on the block while his own stock options languish.

Reports Tuesday indicate Ballmer is set to shake up Microsoft's management ranks in a big way, following his recent decision to relieve Bob Muglia from his duties heading the company's highly profitable Server & Tools division. Bloomberg says Ballmer's next move could be to elevate engineering and product specialists to senior positions in an effort to return Microsoft to its software engineering roots. It would also reduce the perception (or reality) that Redmond has become nothing more than a giant marketing shell for a portfolio of disparate and outdated technologies.

If that shakeup happens, Microsoft might warrant another look from even the most discerning investors'including Bill Gates.