One of the Worst Business Deals of All Time
/You probably haven’t heard of Ron Wayne. Except for a poorly calculated business decision in the 1970s, Wayne would probably be a household name, along with some of the biggest titans of American business.
I had a client who passed away several years ago that was a seasoned investor. He was a wise man on many subjects, and having had a substantial portfolio for many years, he had boiled-down his investment process to a few simple rules. One of the most difficult questions an investor faces is not when to buy a particular holding, but when to sell it. If he or she knows they have a major purchase coming up, do they sell today? Do they hope the market moves up? What happens if the market moves down and they can no longer afford the purchase? This gentleman’s wisdom on the subject was very uncomplicated—“if you need to sell something, sell it”. It seems overly simple, but in most situations, it really is very good advice; if you see that you need money, raise your cash and stop worrying about it.
That advice, however, comes with a caveat that applies to a lot of things in life…it depends. It always makes sense to do some due diligence. Back to Ron Wayne—if he had taken a little breather before cashing out of some shares he had in a start up computer company, things would have worked out differently for him.
In the 1970s, Wayne worked for the fledgling computer game company Atari. His area of expertise was corporate documentation and administration. Wayne had two very bright and ambitious coworkers who were attempting to develop their own computer company. Their names were Steve Jobs and Steve Wozniak.
Steve Jobs, Steve Wozniak, and Ron Wayne
As Jobs and Wozniak were just beginning this new venture, their strong personalities often resulted heated discussions about every aspect of the company, from product design to general administration. From time to time, they consulted their friend Wayne to be a referee of sorts. Jobs eventually proposed the formation of what we know today as Apple, with he and Wozniak each as 45% shareholders, and Wayne as tiebreaker with 10% of the shares.
Soon after formation of the partnership, however, Wayne got cold feet. Wayne was nearly twice as old as Jobs and Wozniak, and he was worried about debt that Apple had incurred. Reflecting on a previous failed slot machine business, he did not want to be liable for debt in a startup. So, twelve days after receiving his shares, he decided that he would sell them back to Jobs and Wozniak. They purchased the shares back from Wayne for $800. That 10% ownership in the company would undoubtedly be worth hundreds of millions of dollars today.
Wayne wasn’t finished making bad business decisions. In the early 1990s, he decided to sell the original partnership agreement between Jobs, Wozniak, and himself. He sold the document for a whopping $500. You guessed correctly—it was resold at auction in 2011 for $1.6 million.
Ron Wayne has repeatedly said over the years that he does not regret selling the shares back to Steve Jobs and Steve Wozniak. His reasoning does make a certain amount of sense—he says that he felt he made the best decision with the information he had at the time. The fact that he had earlier been in the slot machine business and failed probably influenced his decision as well.
Over the years, I’ve had many clients ask when they should take action on their company’s stock. My response is usually, “you know your company better than I do”. If someone has knowledge about their company, it makes sense to take that knowledge into consideration. At the same time, outside considerations sometimes come into play, such as Ron Wayne being afraid of the unknown liability with a new company. Who could have known at the time the two-man computer business started in Steve Jobs’ apartment would turn into the trend-setter that Apple is today? Most of the time, things are pretty straightforward. Sometimes, it just depends.