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Dear Mr. Berko:

D.M., Oklahoma City

Dear D.M.:

I’d like to take credit for recommending the sale of General Electric Co. (GE-$28.97) at $131 a share and giving you the go-ahead to buy BlackRock Inc. (BLK-$208.69) at $16. Either you were having a very profitable dream or you have me confused with someone else.

In 1999, I wouldn’t, under any circumstances imaginable, have recommended the purchase of BLK. Laurence Douglas Fink was chairman, chief executive officer and managing director, and I distinctly remember not liking the man … for very petty reasons that even today I’m embarrassed to recall. So I’m certain as Christmas that I would have discouraged that purchase, and you would not have earned a $193 profit per share or $115,800. And I certainly would not have encouraged you to sell General Electric — those shares were hot as a firecracker, and the Street was expecting a 3-for-1 split. Well, the shares did split 3-for-1, and they’ve traded as flat as old, warm beer ever since.

But I think it’s a good time to sell your 600 shares of BLK and pay the 15 percent tax on your substantial capital gains. The deficit is growing faster than wildflowers, corporate tax revenues are trending downward, and individual tax receipts are falling. All of this is a hard blow for Congress to swallow, so our wonderful congressional officials are likely to raise the capital gains tax in 2009.

Another good reason to sell BLK is that its earnings — after years of absolutely torrid growth — are beginning to wane. BLK’s investment management business, the fees from which have grown 1,000 percent in the last nine years, has begun to slow, and its clients’ portfolio results have turned into negative territory. BlackRock’s revenues are tied to the market performance of its various investment strategies. And if we even skirt the edges of a bear market, the company’s earnings will certainly suffer.

Credit Suisse, Deutsche Bank and Wachovia have recently issued “underperform” ratings and believe revenues plus earnings have topped out. Meanwhile, it’s always better to sell too soon, which is a perfect cure for the most common stock market disease of selling too late.

But I wouldn’t touch Microsoft Corp. (MSFT-$28.93), a lumbering giant of a company with a huge pile of cash, enormous revenues and products that span the globe. I think MSFT may be treading water and current management is allowing the company to stagnate. Microsoft’s reluctance to update its Internet Explorer is fueling the success of the open-source Mozilla Firefox Web browser and may allow more formidable competitors like Google Inc. to attack MSFT’s control of the user interface.

Meanwhile, MSFT is still plagued by antitrust problems, making it difficult to increase its market share. And I’m not comfortable with MSFT’s management and its people teams. I think management is tired, has lost enthusiasm, has lost its drive to excel and innovate and seems satisfied to just maintain its status quo. The company’s people-teams are also bored and appear to share management’s wearisome thinking.

MSFT might move to the $33-$35 level, which may be the best it can do over the next couple of years. Basically, the same observation fits Intel Corp. (INTC-$22.86), the largest semiconductor company in the world, with billions to use for capital expenditures. But size and money are not worth a bucket of warm beer when the competition’s more hungry than you.

Until a couple of years ago, Dell Inc. would only use INTC products, but Dell is now using Advanced Micro Devices Inc. processors, and INTC finds itself competing against more nimble competitors around the world. Intel will continue to be profitable, but it’s no longer an exclusive, dynamic, innovative company. There’s not much growth in INTL, but the stock may be bought for its dividend, which might be increased at an 8 percent to 10 percent annual pace over the next dozen years.

Meanwhile, I think a money market fund might be a good temporary home for the sales proceeds of your 600 shares of BLK until the housing market, the credit crunch, the mortgage/collateralized debt obligation/derivative crisis and problems in the oil patch settle down.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © Copley News Service