Losing It All Pt.2

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In this series, I’m looking at some of the biggest investing mistakes of all time and how they transformed the investment strategies of those who made them.

Part one looked at Carl Icahn’s biggest failure at the beginning of his career, a failure which caused him to rethink his whole strategy and outlook on life, putting in place the foundations for his activist career.

Losing It All Pt. 1

In this, part two, I want to highly the story of Masayoshi Son, the founder and CEO of Japanese conglomerate SoftBank.

The story of Son and SoftBank goes back many decades. During this period, Son lost more than anyone has ever done before in the dot-com crash but then went on to make to most successful investment ever recorded achieving a 6500x return for SoftBank shareholders.

The Son story begins in San Francisco where, after moving from Japan, he enrolled in high school, then the University of California at Berkeley to study computer science and economics.

Even as a young man, Son was interested in business and was always looking for the next big deal. While studying he hired a scientist to help him build a voice-operated multilingual translator, which he later sold for $450,000. He then set up another business importing Space Invaders game machines from Japan.

After completing his studies, Son returned to Japan and set up SoftBank. Initially a tech distribution business, the firm grabbed 50% of the market in Japan and Son began to use the funds generated to invest in new opportunities, specifically, fast-growing tech firms.

The firm invested in over 600 tech startups including a small struggling search company called Yahoo, which needed cash to develop its search engine tech. The company only needed $5 million but Son offered $100 million and thus, ended up owning a third of Yahoo when it went public in 1996. This aggressive dealmaking is one of Son’s hallmarks, even today. Granted, not all of his bets have worked out, but those that have, have more than made up for the mistakes.

“Son was not easily deterred. As one analyst wrote of Son, ‘Indeed, Chairman Masayoshi Son seems to be the last true believer in the Internet Revolution. He already has invested $8.8 billion in corporate and venture capital money in more than 600 companies — about half of the dough coming from institutional investors. Now he’s got another $4 billion he raised before the market swoon that he plans on investing over the next two to three years. The goal is Net companies in his portfolio.” — Japan and the Internet Revolution K. Coates, C. Holroyd

Unfortunately, Son was expanding at just the wrong time. In the early 2000s the dot-com bubble burst. SoftBank, which was worth $200 billion at its peak, had seen its value slump to $27 billion at the end of 2001. This decline cost Son $65 billion personally (from $68 billion to just $2.7 billion), perhaps the largest investment loss of all time.

But Son was unperturbed. Even though he had lost billions, he decided to double down. SoftBank re-concentrated its portfolio. The company had previously been investing incautiously in tech business across the world and now its closed down overseas offices and focused its efforts on Asia.

“I’m not much worried about that. It’s a 100 years Revolution. As it was for the auto industry, or the electronics industry, or the telephone industry. Narrowband is only the very beginning of the true technological depth that the Internet can deliver. What kind of content can you deliver on narrowband? Do you get excited about text and still pictures? Broadband will enlarge the total market size. It is going to open up all kinds of new opportunities. The scale will be hundreds of times bigger. People will start paying for content.”– Japan and the Internet Revolution K. Coates, C. Holroyd

As the quote above shows, Son could easily see the future potential of the internet and wanted SoftBank to be there when users realised the potential as well.

When the dot-com bubble burst, Son lost billions but he didn’t give up and this perseverance has paid off handsomely. His most lucrative bet, however, was made before the tech bubble burst in 2000. Using the same aggressive tactic he did with Yahoo, Son invested a large sum of $20 million with Jack Ma and his startup online shopping business, Alibaba. When the company went public in 2014, SoftBank’s stake in the business had grown to $58 billion, a return of more than 6,500% making SoftBank’s $20 million investment in Alibaba probably one of the greatest ever.

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