Billionaire Loses Billions

Posted on December 4, 2007 by Ben Connard

Last week’s Sports Illustrated had a puff piece on Paul AllenMicrosoft co-founder and current owner of the NFL’s Seattle Seahawks and NBA’s Portland Trailblazers. The national magazine feature explored the reasons why Allen avoids publicity.

Allen comes across as a likable guy who just wants the best for his teams and the cities in which they play while trying to learn from his mistakes. For me, the most interesting part of the article referred to his mistakes as an investor. It turns out Allen, while extremely wealthy, should be much wealthier.

According to Forbes, Allen is worth about $18 billion, making him the 5th wealthiest American. Allen originally held a 28% stake in MSFT before gradually selling shares in order to invest in other ventures. Today MSFT is worth more than $310 billion, meaning a 28% share would be worth about $85 billion. In theory, if Allen had done nothing with his shares he would be worth about $67 billion more.

Some of Allen’s money went to charity and some was spent on extravagant items like Jimi Hendrix memorabilia and a giant yacht with two helicopters, a pool and a submarine; this explains some of his reduced wealth. However, the majority of the loss is from ventures on which I’m almost positive Allen was trying to make money.

He’s had a few winning investments. He indirectly owns more than 10% in Plains All American Pipeline LP, a $6 billion oil and gas pipeline company that has performed exceptionally well. But he’s had some big losers, such as Charter Communications of which he owns 7%, which IPO’d at $24 and now trades around $1.25. The first company he founded after leaving MSFT, Asymetrix, went nowhere.

My point is not to bash Allen—his wealth is beyond imagination and he co-founded one of the most important companies of the information age. My point is investing in winning technologies is very difficult, and doing it once no matter how successful, does not make you infallible, especially when you extend beyond what originally made you successful.

We take this into consideration in our investments. Just because a company has come up with one product does not mean it can recreate the magic. K-Swiss Inc., makers of the shoes, is a good example. The company can’t seem to expand beyond its original shoe. We are also weary of management teams which invest beyond their expertise. Google comes to mind, with their recent investment in solar power. Some wish they would just stick to what made them so successful in the first place—organizing the world’s information.

Allen could buy the entire NFL and NBA if he’d stuck to his software.