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If you had invested $1,000 at Microsoft's IPO, here's how much you'd have...
Microsoft co-founder Bill Gates is the second-richest person in the world, worth an estimated $96 billion, thanks to the success of his software company. And while his wealth is an extreme example, if you had bet on Microsoft in its early days in the mid-1980s, your gamble would have paid off big time, too.
A $1,000 investment in Microsoft on the day of its initial public offering, or IPO, on March 13, 1986, would be worth more than $1.6 million today, according to CNBC calculations. That includes price appreciation and dividends.
While Microsoft's stock has performed well, any individual stock can over- or under-perform and past returns do not predict future results.
Microsoft's stock prices as of November 19, 2018, at 1:02 p.m. ET. Click to enlarge
Microsoft was founded in 1975 by Bill Gates and Paul Allen, two friends from high school who bonded over their mutual love of computer science. Gates dropped out of college after his sophomore year at Harvard so he and Allen could focus on adapting BASIC, a popular programming language, for use on early personal computers.
By 1978, the company's year-end sales were over $1 million.
Information technologyIBM hired Microsoft in 1980 to develop a non-exclusive operating system for its first personal computer. That system became MS-DOS, one of Microsoft's most profitable products ever. MS-DOS was used in all IBM computers at the time and also became the go-to operating system for almost every PC on the market.
Microsoft waited 11 years before going public, primarily because Gates wanted to retain as much control of the company as possible. It helped that Microsoft was so profitable that it didn't need outside money in order to grow.
Since Gates had begun selling shares and offering stock options to prospective employees in order to entice top talent, though, Microsoft President and Chief Operating Officer Jon A. Shirley projected that, by 1987, enough people would own Microsoft stock that the company would be forced to register with the SEC. Gates finally acquiesced to the idea of an initial public offering because the IPO would create a much wider, more liquid market for the company's shares.
Bill Gates: This is my biggest weakness
Microsoft went public on March 13, 1986, at an opening price of $21 per share. However, 'the first trade took place at $25.50 a share, an indication of the fierce demand for the stock,' the Seattle Post-Intelligencer reported at the time.
Throughout the day, just over 3 million shares were sold. Originally, only 2.5 million were offered, but the number was raised to meet demand.
Both Gates and Allen immediately became multi-millionaires. Gates earned $1.6 million off the shares he sold and put a market value of $350 million on the 45 percent stake he retained, Fortune reports, making the 30-year-old one of the richest people in the country. Allen had left Microsoft years earlier but held onto a significant stake in the company.
Gates's wealth ballooned from there and, in 1987, he made history as the youngest person to ever become a billionaire. By 1995, his fortune had grown to $12.9 billion, making him, at 39, the world's richest man. He retained that title for years.
Gates ran Microsoft until 2000, when he stepped down as CEO in order to focus on philanthropy.
Even after leaving Microsoft, Allen remained a titan in the tech industry, as well as an influential member of the Seattle community. He died in October 2018 at age 65 from complications of non-Hodgkin's lymphoma.
Microsoft has sometimes struggled to find its identity
Post-IPO, Microsoft continued to dominate the software industry. On the heels of the release of Windows 2.0 in 1987, it became the largest software company in the world by sales.
Over the next few decades, Microsoft continued to innovate and expand its scope. One of its most successful releases came in the in the mid-90s with the introduction of Windows 95. Microsoft sold an astounding 40 million copies in its first year. In 2001, the company introduced the Xbox, which was also an immediate hit and sold 1.5 million units in less than two months. The console grounded Microsoft in the video game space, and that became one of its most profitable divisions.
Microsoft has also faced plenty of setbacks over the years. In the late 90s, the company faced antitrust charges from the U.S. Department of Justice and, in the early 2000s, it released a string of unpopular products, including the Zune music player, Windows Vista operating system and Surface tablet.
When Satya Nadella took over as CEO in 2014, he began a major turnaround at the software company. From the beginning, Nadella embraced cloud computing and helped Microsoft emerge as a top competitor in the space, challenging Amazon Web Services and others.
Microsoft also expanded its reach through the acquisitions of professional networking site LinkedIn in 2016 and code-sharing service GitHub in 2018. The deals helped boost the company's user network and emphasize the new direction Microsoft has taken in recent years. The acquisition of GitHub, especially, showed the company's willingness to embrace new technology, even if it doesn't directly control it.
Since Nadella took over, Microsoft's share price has nearly tripled. It stands as one of the most powerful companies in the tech industry, with a market cap that rivals those of Amazon and Google.
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How Bill Gates helped Jeff Bezos become the richest person in the world
About three years ago, Tim Grittani decided to begin trading stocks with his life savings of $1,500. Today, the 24-year-old's portfolio is worth more than $1 million.
How did he do it? Not by buying and selling stocks of large and well-known companies like Apple(AAPL) or Ford(F). Instead, Grittani trades penny stocks -- very small companies that typically have a price below $1.
He's the first to admit that it's a risky strategy. And it's not for everyone.
'I've been trading every single day for almost three years, and it's been a slow, day-to-day process,' Grittani said. He spends the entire trading day in front of a computer screen, in order to buy and sell stocks at the right time. He is sometimes in and out of stocks within minutes, and the longest he ever holds shares is a few days.
So why trade penny stocks? Many of these companies are speculative because they are thinly traded, usually over the counter instead of on major exchanges like the New York Stock Exchange. The Securities and Exchange Commission warns that 'investors in penny stocks should be prepared for the possibility that they may lose their whole investment.'
Plus, penny stocks are notorious for being part of so-called pump-and-dump schemes, in which scammers buy up shares and then promote it as the next hot stock on blogs, message boards, and e-mails. Once the stock price is artificially pumped up by all the talk, the scammers sell their stake, leaving unsuspecting investors with big losses.
But Grittani has been able to profit because it's such an inefficient market. He knows what to look for and recognizes how to make money out of pump-and-dump scams without doing any pumping or dumping himself.
In fact, the trade that officially pushed the value of his portfolio over $1 million was a short bet against a company that had been the target of a pump-and-dump scheme. When investors short stocks, they borrow shares and sell them with the hope of buying it back later a lower price and pocketing the difference.
Grittani had noticed shares of a company called Nutranomics, which trade over the counter under the symbol NNRX, had shot up due to what he felt was the manipulation of scammers: the stock had tripled in just a month. Last Monday, Grittani detected that the stock was losing momentum, and he felt that at the very least a small pullback was imminent.
Sure enough, the stock tumbled almost 60% in the span of 23 minutes. Though he didn't benefit from the entire plunge, Grittani walked away $8,000 in ten minutes.
Grittani learned about penny stocks from Tim Sykes, who is famous for turning his Bar Mitzvah gift money of about $12,000 into millions by day-trading penny stocks while in college. For the past five years, Sykes his been teaching his strategies through the sale of instructional newsletters and video lessons.
Grittani first learned about Sykes in early 2011, when he was a senior finance major at Marquette University in Milwaukee.
Earlier on in college, Grittani played poker and made wagers on sports games to make money. He had some luck, including a $9,000 win from a sports bet. But he lost all of that over the course of a year and decided he needed to quit gambling. So he took a shot at investing.
'I started by opening an account with $500 to see what I could pick up on my own,' said Grittani. 'But within a few weeks I lost half my account and decided I needed some outside help.'
Grittani scoured the internet and eventually came upon Syke's story. He spent a few months learning about Syke's theories and eventually started trading. The first few months were rough. At one point he was $1,300 in the hole. But within six months, Grittani made his first big winning trade.
After receiving an e-mail about what he felt was a pump-and-dump scheme targeting Amwest Imaging, Grittani plowed $3,000 into the company. Figuring that it would eventually collapse, he sold his stake within 10 minutes. But that was enough to book a 70% gain, or $2,000. (Amwest Imaging has since changed its name to Intertech Solutions, trading under the symbol ITEC.)
'That's the kind of volatility penny stocks have when they are promoted. The key is to buy them ahead of the crowd,' said Grittani.
But Grittani and Sykes both go out of their way to point out that trading in penny stocks is not the same as long-term investing. This is not a strategy for your retirement accounts.
'I think it's mainly for people who are gamblers,' said Sykes, who taught himself all about trading. 'But at casinos you play with low odds. With penny stocks, there are patterns that are very predictable.'
Along those lines, Grittani's biggest win over the past few years was a quick trade in Fannie Mae(FNMA). While there wasn't a particular news catalyst that prompted him to look at the government-sponsored mortgage giant, Grittani spotted increased volume and activity that suggested the stock would tank and then bounce back. Through a combination of long and short trades, he raked in $215,000 in one day.
So what's next for Grittani now that he's hit the $1 million mark? He plans to continue to day trading for at least another two years before taking time off to travel.
And though he's earned a million in trading profits, Grittani says he'd like to eventually get to the point where his personal net worth exceeds $1 million. He currently estimates he's worth $650,000, and anticipates he'll reach his goal 'within the next year or two.'
CNNMoney (New York) First published December 16, 2013: 11:05 AM ET