Thursday, December 15, 2011

Diary: Even Bill Gates didn't understand Microsoft's franchise

Very quotable item from csinvesting:

According to Bill Gates 'first book, --The Road Ahead,' he and Paul Allen tried to sell the company to IBM some years earlier and they were turned down. And so...hindsight my inescapable conclusion is that neither party of the proposed transaction understood what was valuable about Microsoft. In my mind it?s a huge irony at least because in my point of view Microsoft became the most valuable toll road in modern business history. But here again, even the people running the company at an early stage did not understand what it was that made it valuable. And it wasn?t even visible to them. So my point here is simply that the source of a business' strength may not always be obvious.
The speaker offers some additional insights:
my biggest investment mistake was not buying enough ofthe ones that were really good.
We saw Warren spend much of the last two decades acquiring businesses which were designed to benefitfrom GDP plus growth in large scale consumer businesses, whether housing materials, or furniture, orall kinds of things like that, and it appears that he shifted now to buying industrial and, that sort of stuff, he?s had a whole... but we all go through those things, and you know, none of us are very good at predicting in advance where we ought to be
Charlie has commented in print in last year?s meeting that we were within daysof a total collapse of the financial system worldwide. None of us can protect against that, and so when Robert was talking about Buffett?s call in the market bottom of October of 2008, and it kept declining, the analysis is simply, these things are so cheap that I have to buy them here, and if I?m wrong, it?s because we?ve had a total system of collapse, and it won?t make any difference.
In life aswell as in business, which is every day, I?m lucky if I have learned something new, and I?m doubly lucky if it hadn?t cost too much.

1 comment:

UK Value Investor said...

"neither party of the proposed transaction understood what was valuable about Microsoft"

I'm not sure that matters for Bill. If you set up Microsoft and you were 25 or 30 and IBM offered you £100m, would you take it, because I would. I wouldn't give a monkeys that at some point in the future I 'would' have been worth £1b instead. I just don't care. £100m is plenty for me to go sit on the beach with.