Strategy

Billionaires vary in their tolerance for risk, and being a high risk taker isn’t a necessity for amassing impressive amounts of wealth. Yet, almost without exception, all billionaires take risks at some point in their business careers that others hesitate to take. Most often, these risks are taken on the basis of intimate knowledge of the business, and when they work out, have the effect of launching net worth into a higher orbit.

Examples

*When Apple and Microsoft went to court over computer software in March 1989, Steve Ballmer (then the sales manager of Microsoft) purchased $46 million of Microsoft stock. Within three years, those shares had a market value exceeding $350 million as the court ruled in Microsoft’s favor.

*Sam Walton was highly conservative, always avoiding debt. He did, however, go into debt when bar-coding and satellite communications became available – long before they were proven to be viable ideas for general merchandising. The adoption of this new technology turned out to be an astute investment which saw Wal-Mart leap ahead of its competitors.

*H.L. Hunt parlayed a $50 start-up capital stake in 1921 into a $600,000 pool of capital in 1925 by investing in the oil business. He then offered to buy an apparently dry oil well from a wildcat driller for $50,000 in cash, $45,000 in promissory notes and a guarantee of $1.3 million should the well go into production in the future. The owner accepted the offer, and Hunt later managed to turn that well into a huge oil producer which ultimately generated more than $100 million in profits for him

*John Kluge took Metromedia private in a $1.2 billion leveraged buyout in 1984. He even had to refinance part of the transaction in order to comply with government regulations, using high yield “junk bonds”. As the prices of broadcasting assets surged over the next two years, Kluge not only managed to pay off the debt but also netted a profit of $1.6 billion. Kluge risked everything he had created over the preceding 25-years on the direction the stock market would move from 1984 to 1986. And in doing so, became a billionaire..

keythoughts

“The greatest factor in my life – and I know entrepreneurial people don’t want to express it, they think it diminishes them – but luck plays a large part. I think the ability to gauge risks is crucial. I never ordinarily take on things that I can’t see some end to, where you pile risks on risks.” – John Kluge

“The race isn’t always to the swift, nor the battle to the strong, but that’s the way to bet.”

– Damon Runyon