I recently read the book "Hard Drive" by James Wallace and Jim Erickson. The book is about the life of Bill Gates (Trades, Portfolio) and how he co-founded the largest software company, Microsoft (NASDAQ:MSFT).
Microsoft became the first company to deliver $1 billion in sales in one year. That year was 1990, and by 1992,Ă‚ Bill Gates (Trades, Portfolio) was the second richest man in the U.S. next to television tycoon John Kluge,Ă‚ according to the Los Angeles Times.
The book describes Gates' personality and how he formulated relationships throughout his life. One of his closest friends growing up was Carl Edmark, who described Gates as "very eccentric, even back then.” The two went to elementary school together, graduated from high school together, and continued to be good friends for years afterward. “Everything Bill did, he did to the max.” Edmark said. Gates was a firm believer that he could accomplish anything that he put his mind to.
In reading "Hard Drive," we learn how luck was a factor to Gates'Ă‚ success, as his parents enrolled him at Lakeside, a first-class all boys school that was one of the first schools to have access to computer capability.
When Gates was first enrolled at Lakeside, computer time was extremely expensive. Parents at the school had to raise extra money so that the students could participate in using the PDP-10 (Program Data Processor) The students could type commands from Lakeside and communicate via telephone wire, which then connected to a minicomputer in downtown Seattle. The school was then billed by General Electric (GE) for using the service.
The book describes how persistent and tenacious Gates was for computer time when he and his fellow classmates hacked into the PDP-10 mainframe security system and obtained access to the company’s accounting files. They found their personal accounts and substantially reduced the time that the computer showed they had used. Gates and his friends, however, were caught and suspended from the system for six weeks.
But this didn’t stop the legendary inventor from his love of using computers. He continued to persist in writing programs, and one even crashed the Computer Center Corporation. He designed a program called “Bill” and every time the program was loaded onto BASIC (Beginner’s All-purpose Symbolic Instruction Code), it would ask for the name. Gates would then type “Bill” and the entire system would crash. C-Cubed fixed the problem, but realized that Gates and his classmates could be important resources to improving the C-Cubed system. They were offered an opportunity to work the nightshift in exchange for unlimited access to computer time.
I really admire Gates' courage along with his fellow classmates. They took chances that they believed was crucial toward their success. This is a great book because it discusses everything that Gates endured on his way to creating Microsoft.
Microsoft has been a Fortune 500 company since 1997.
Microsoft has a market cap of $434.46 billion, a P/E ratio of 36.43, an enterprise value of $373.67 billion and a dividend yield of 2.34%.
Below is the Peter Lynch chart for the company.
Although GuruFocus gives Microsoft an 8 out of 10 ranking in financial strength and 7 out of 10 in profitability and growth, there are a few warning signs to be considered:
Gross margin has been in long term decline. The average rate of decline per year is -4.1%.
Microsoft's operating margin has been in a five-year decline. The average rate of decline per year is -10.5%.
Asset growth is faster than revenue growth. Microsoft is building assets at 11.6% a year, faster than its revenue growth rate of 9.5% over the past five years, which means that the company may be getting less efficient.
Reading this book was a great learning experience, as Gates so relentless and persistent on his way to building the number one software company in the world.
Cheers to your investment success.
