Steve Jobs and Bill Gates were born in the same year.
Both dropped out of college.
Both started companies with good friends: Gates founded Microsoft (NASDAQ: MSFT) with Paul Allen in April 1975, while Jobs founded Apple (NASDAQ: AAPL) with Steve Wozniak exactly one year later.
And both got rich — extremely rich.
But it’s here where things diverge, because at the time of Jobs’ untimely death in 2011, his $11 billion net worth was a fraction of Gates’ $66 billion. This discrepancy may strike you as odd, given that Apple’s market capitalization at the time was $132 billion greater than Microsoft’s.
So how do you explain this?
If you’re familiar with Jobs’ story, then you already know the answer: He sold all but one of his original Apple shares in 1985, the year he was ousted from the company by then-CEO John Sculley and its board.
Jobs’ 11% stake in Apple was worth somewhere in the neighborhood of $130 million at the time. And, for the record, this was considerably smaller than the 26% stake he emerged with after the first serious round of fundraising in 1977.
At today’s price, those stakes would be worth more than $69 billion and $162 billion, respectively. In other words, had he not sold shares along the way, Jobs would have been the world’s richest person by leaps and bounds, as Gates’ current net worth is estimated at $79 billion.
Don’t get me wrong. I’m not trying to be critical — far from it, in fact.
In the first case, Jobs had no reason to feel optimistic about Apple in 1985, given the circumstances of his ouster — not to mention the fact that Apple may have gone the way of the dodo bird without Jobs’ eventual return.
Moreover, there’s every reason to believe that, had Jobs not left when he did, we wouldn’t have Pixar, which he purchased from Lucasfilm in 1986 for $10 million. He revitalized it with money and technology, and then sold it to Disney in 2005 for $7.4 billion of the House of Mouse’s stock — thereby becoming the entertainment company’s largest individual shareholder.
What I am trying to do is demonstrate the power of buy and hold investing.
Sure, I would love to be as rich as Steve Jobs was — or even to have a fraction of his net worth. But Jobs had contemporaries who, like Gates, wanted more. And when it comes to building wealth, as Gates’ experience illustrates, there are few better tools than time and compounding returns — both of which, by the way, are equally accessible to us mere mortals.
Of equal importance are brilliant ideas that are identified in their infancy.
Countless investors have become millionaires virtually overnight by riding the wave of technology driven by the likes of Gates and Jobs. In the process, these investors’ lives have been radically transformed. Making money is no longer their objective; their challenge now is spending it on a lifestyle once thought unimaginable.
The key to these investors’ success isn’t the ability to recognize promising trends; all of us can do that. The key instead is the courage and conviction to put money on the line when you inevitably encounter a transformative idea.