In 1997, Steve Jobs famously returned to a struggling Apple. Apple company’s stock was at a 12-year low. The company was hemorrhaging cash. According to Jobs, “We were 90 days from going bankrupt.”
One of his first goals was to convince Microsoft to keep building new versions of Office for the Mac. Word and Excel had become standard software for most businesses, and since Mac sales had plummeted, Bill Gates was understandable hesitant to waste resources on upgrading applications for what appeared to be a dying brand.
Fortunately for Jobs, he did have a couple of cards to play. Apple and Microsoft were embroiled in a patent lawsuit that alleged Windows had infringed on Apple’s intellectual property by replicating elements of the Mac’s graphical user interface. Patent cross-licensing would make the suit irrelevant.
Plus, Gates knew that without Apple, Microsoft might seem like even more of a monopoly; keeping Apple afloat would indicate to regulators, and the market, that healthy competition existed.
For his part, Jobs asked for two things:
- a 5-year commitment from Microsoft to provide Office for the Mac, and
- for Microsoft to purchase $150 million shares (just slightly under 5 percent of the company) of non-voting Apple stock
Why the stock purchase? Apple could certainly use, but didn’t absolutely need, the money: It still had approximately $1 billion — however rapidly dwindling — in cash assets.
As the authors of the excellent Becoming Steve Jobs write:
(Jobs) also wanted his powerful rival to publicly, and financially, make clear that this was an endorsement of Apple’s new direction by purchasing $150 million in nonvoting shares. In other words, Steve wasn’t asking for a loan, he was asking Bill to put his money where his mouth was.
“It was classic (Jobs),” remembers Gates. “When Steve comes in, he looks at the deal and says, ‘Here are the two things I want, and here’s what you clearly want from us.’ And we had that deal done very quickly.”
There were other deal points. Jobs agreed to include Internet Explorer in subsequent Mac software releases and make it the default browser. Gates agreed to appear in person at MacWorld to announce the stock purchase (although he eventually did so on a giant video screen, marking what Jobs later called “my worst and stupidest staging event.”)
Did the deal save Apple? No; ultimately, the iMac and resulting products saved Apple. (Do I wish this scene from Pirates of Silicon Valley actually happened? Yes.)
Yet it was a watershed moment for both companies.
And set the stage for one that followed.
As part of the agreement, Gates agreed not to sell the Apple stock for three years. (Skin is only skin if it stays in the game.) In 2003, Microsoft sold its entire stake for $550 million.
Nearly quadruple your money in six years? Hard to beat.
Yet had Microsoft held on to its Apple stock, today those shares would be worth over $120 billion.
Imagine a few years ago you bought $1,000 in Bitcoin. And it doubled. And doubled again. And doubled again. Your original $1,000 had become $8,000. Did you continue to hold?
If you’re like me, probably not, since loss aversion is a common cognitive bias.
In fact, research by Daniel Kahneman, author of Thinking, Fast and Slow, indicates that losses are twice as psychologically powerful as gains. A loss means giving up something you actually have; not acquiring a gain means giving up something theoretical rather than actual.
If you could have made another $10,000 by holding onto your Bitcoin a little longer, yeah, that’s painful.
But if you have $10,000 in Bitcoin and lost most of it… that’s really painful.
Hindsight makes us think that even though we didn’t do it, we actually did know the right thing to do. As I’ve written before, in the 1980s, my next-door neighbor, a computer science professor, started a language learning company from his living room. That fledgling company became Rosetta Stone.
Sure, I could look back now and think, “Wow, I should have invested.” But that’s now. At the time, I thought he was very nice but kind of odd; I would never have invested in his startup.
Only in hindsight does it seem smart.
As forgotten Apple co-founder Ronald Wayne — who relinquished his stake in the company after two weeks, an ownership share that would today be worth $75 billion — says:
I have never had the slightest pangs of regret because I made the best decision with the information available to me at the time. (My italics.)
There’s no way to know the actual reasons, but Gates clearly made the best decision he could with the information available at the time. Or, if not, learned from it.
But I doubt he regrets having sold Microsoft’s Apple stock. Past mistakes don’t define people. Past mistakes don’t define companies. Often a mistake isn’t really a mistake: Sometimes a great decision turns out poorly due to factors impossible to predict or outside your control.
Sometimes a terrible decision turns out well because you got lucky.
All you can do is make the best decision you can with the information you have available.
And then learn from how it turns out, so that next time you’ll have even more information — and experience — to draw from.
