Microsoft's worst CEO did 1 thing right

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Happy Friday Everyone. Did you know that former CEO Steve Ballmer owns more of Microsoft than Bill Gates does? And, if Gates never sold, he would be over +$1 Trillion richer…

In today’s newsletter, you’re going to learn how Steve “Diamond Hands” Ballmer ended up with $112B in Microsoft, and how you can apply the same principles to your own investments.

In today’s edition:

• Steve Ballmer makes $112B in Microsoft

• Here’s what a business moat is and why it’s important

• How to spot businesses with strong moats

Read time: 5 minutes

STORY

💸 From Criticized CEO to $112B Fortune

The Big Idea: Even when facing challenges, one brilliant move can redefine your entire legacy.

For years, Steve Ballmer was the butt of Silicon Valley jokes — the guy who missed the smartphone train and thought Zune could be a thing.

But Ballmer made ONE genius decision that outshone everything else: he bet big on Microsoft from day one and never wavered.

This approach of doubling down on your convictions became the cornerstone of Ballmer's impressive $112 billion fortune.

By holding onto his Microsoft shares through all market conditions, Ballmer turned his initial investment into wealth that rivals the GDP of small nations.

Here's how Ballmer played the long game (taking Warren Buffett's "our favorite holding period is forever" to the extreme):

• Joined Microsoft in 1980 for a $50,000 salary and 8% equity stake

• Remained Microsoft's largest individual shareholder after retirement

• Benefited from Microsoft's impressive growth under CEO Satya Nadella

Fast forward to today:

• Ballmer owns 4% of Microsoft (worth about $112 billion)

• Bill Gates, the OG tech guru? Only 1.3%

That's right, the guy once dubbed Microsoft's "worst CEO" now owns more of the company than its founder (and owns the LA Clippers). Plot twist.

By the Numbers:

• Initial Microsoft stake (1980): ~$160,000 (8% of $2 million valuation)

• Microsoft market cap at Ballmer's retirement (2014): $315 billion

• Microsoft market cap today (2024): Over $3.12 trillion

• Ballmer's current stake (2024): 4% of Microsoft

• Ballmer's net worth (2024): $125.2 billion

• Return on initial stake: 700,000x (or 70,000,000%)

Go Deeper: Here is the most in-depth analysis on the history of Microsoft (YouTube)

INSIGHT

🏰 Moats: Your Edge in Picking Long-Term Winners

What's a Moat? A moat is a sustainable competitive advantage that protects a company from competitors, much like a water-filled moat protects a castle. The term comes from the GOAT, Warren Buffett.

There Are 5 Types of Moats:

1. Brand Power: Customer loyalty lets companies charge premium prices (Apple's devoted fans pay more for iPhones).

2. Network Effects: Product value increases as more people use it (Facebook is essential because everyone's on it).

3. Cost Advantages: Operational efficiency enables lower prices or higher margins (Walmart's massive scale reduces per-unit costs).

4. High Switching Costs: Customers stay because changing is expensive or inconvenient (Businesses rarely switch from Oracle due to integration complexity).

5. Intangible Assets: Legal protections like patents or licenses block competitors (Disney's exclusive rights to Mickey Mouse).

Why Moats Matter:

• Shield Market Share: Like a fortress, moats fend off competitors, keeping customers loyal and rivals at bay.

• Fatten Profit Margins: With less price pressure, companies can charge more, turning revenue into juicier profits.

• Fuel Long-Term Growth: Protected from competition, firms can reinvest profits into R&D and expansion, snowballing success.

• Attract Investor Love: Wall Street swoons for predictable, growing cash flows, boosting stock prices and valuations.

• Weather Economic Storms: Strong moats provide resilience during downturns, as customers stick around even when times are tough.

Moats transform good businesses into enduring money-making machines, turning short-term success into long-term market dominance. Here’s how to spot your next MOAT. 👇

ACTION

👑 Here’s How to Spot a Moat

Step 1 - Look for Consistent High Returns

• Use free stock screeners (like Finviz or Yahoo Finance)

• Filter for Return on Invested Capital (ROIC) > 15% for past 5 years

• Compare to industry average using Morningstar's Industry Overview

Step 2 - Examine Pricing Power

• Check annual reports (SEC.gov) for revenue and cost trends

• Use Google Trends to track brand search interest over time

• Monitor product prices on Amazon or industry-specific websites

Step 3 - Research Market Share Dominance

• Read industry reports on Statista.com (some free data available)

• Check company investor presentations for market share claims

• Use Google News to track industry developments / market discussions

Step 4 - Find High Barriers to Entry

• Read the "Risk Factors" section of annual reports (10-K filings)

• Follow industry news on free sites like Seeking Alpha or Motley Fool

• Check patents on Google Patents or the USPTO website

Step 5 - Confirm Customer Stickiness 

• Look for customer churn rates in annual reports or earnings calls

• Read product reviews on Amazon or industry-specific sites

• Check app store ratings and user reviews for tech companies

More Free Tools for Analysis:

• EDGAR (SEC.gov) for all company filings

• Koyfin.com for financial data and charting

• TipRanks.com for analyst ratings and price targets

• Gurufocus.com for financial ratios and value investing metrics

Key Takeaway: Building these skills takes time. Start with a few well-known companies to practice your analysis before making investment decisions.

One Funny Thing 🤣 

Publisher: Jordan Belfort

Editors in Chief: Brock Swinson and Davis Richardson

DISCLAIMER: None of this is financial advice. This newsletter is strictly for educational purposes and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.