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Warren Buffett Ignored Microsoft Insider’s 1997 Stock Pitch. He Missed a 5370% Gain

Last Updated September 23, 2020 1:25 PM
Mark Emem
Last Updated September 23, 2020 1:25 PM
  • In 1997, Warren Buffett couldn’t be convinced to invest in Microsoft and has consequently missed out on spectacular gains.
  • One of his favorite stocks, Coca Cola, has been vastly outperformed by the software maker over the same period.
  • The Berkshire Hathaway head has recently become more receptive of investing in tech companies.

Warren Buffett may be the best of buddies with Bill Gates. But this hasn’t been enough to persuade him to put his money in the Dow’s second-largest gainer this year – Microsoft (NASDAQ: MSFT).

It’s well-established that Microsoft founder Bill Gates and Warren Buffett are good friends. | Source: Saeed Adyani/Netflix via APThe Berkshire Hathaway CEO has instead invested in what was Microsoft’s bitter rival in the 1980s and 1990s and Dow’s biggest gainer in 2019 – Apple.

But Buffett has had numerous chances to invest in Microsoft over the last three decades but failed to, consequently missing out on spectacular gains. And it’s not as if he didn’t have enough prodding from various quarters.

Who tried to sell Microsoft to Warren Buffett?

Back in August 1997, for instance, fellow Nebraskan and Microsoft insider Jeff Raikes emailed the Berkshire Hathaway Chairman and CEO  to interest him in the stock.

In the email, Raikes argued that the software maker’s prospects as an investment were just as good as Coca Cola’s – a known Buffett favorite. Raikes was then a senior Microsoft executive and retired in 2008 as the President of the Microsoft Business Division.

Raikes wrote:

In some respects I see the business characteristics of Coca Cola or See’s Candy as being very similar to Microsoft. I think you would love the simplicity of the operating system business.

Warren Buffett
Warren Buffett responds to Microsoft pitch | Screenshot

Buffett was unconvinced, though.

In his response, the Berkshire Hathaway head confessed his optimism over Microsoft’s prospects but only in the short run. But trying to determine its future over a period of two decades, Warren Buffett argued, would be “folly”.

Biggest miss of the last two decades?

Twenty-two years later, this has gone down as one of the Berkshire Hathaway CEO’s biggest misses.

At the time, Microsoft was trading between $16 and $18. Having split three times  since 1997 on a 2-for-1 basis the stock would be valued at $930 as of Thursday’s close, all factors being constant. Using the median price at the time he could have gotten in, the stock has appreciated by $913. That’s a 5370% growth in a little over two decades!

Microsoft stock price chart | Source: TradingView

Additionally, Microsoft has paid out dividends consistently with the yield averaging 1.3% .

Microsoft vs. Coca Cola

Since Raikes pitched Microsoft to Buffett using the example of Coca Cola (NYSE: KO), the software maker’s stock has vastly outperformed that of the beverages giant.

In August 1997, the price of Coca Cola ranged between $29 and $35. Having split on a 2-for-1 basis in 2012  the stock would be worth about $108 as of Thursday’s close. Using a median price of $32, this translates to an appreciation of 238%. Microsoft’s growth beats Coca Cola’s handily.

Coca Cola
Coca Cola stock price chart | Source: TradingView

Coca Cola is Berkshire Hathaway’s third-biggest stock investment. The Warren Buffett investing conglomerate owns 9.4% of the beverage maker .