Buy Low and Sell High Like Steve Jobs
How Steve Jobs bought Pixar for $10 million and sold it for $7 billion!
Everybody has heard the phrase buy low and sell high, but few people actually know how to do it. My career started on Wall Street, working in Mergers & Acquisitions. It was there that I saw how world-class dealmakers bought low and sold high. Even though the examples I will be using here involve billions of dollars, you can still apply these principles to your life, just on a smaller scale. The dollars for you may be smaller, but the principles remain the same!
To buy low, you need to find undervalued assets. When looking for undervalued assets, remember that one person’s trash is another person’s treasure. Fortune magazine said: “High among the assorted abilities of business’s most successful people is their extraordinary capacity to look at mundane things and see the miraculous.”
Undervalued assets usually have distracted owners. They are focused on other things. The asset becomes neglected because it is not that important to them. Dealmakers, on the other hand, see the asset’s potential. They have a passion to make it grow. They invest in the asset. By making changes and doing things differently, the asset reaches its full potential.
The greatest example of this was the Pixar deal in 1986 negotiated by the legendary Steve Jobs. At the time, George Lucas owned Pixar, but he was the classic distracted owner. He was going through a divorce and was busy producing the Indiana Jones movies. So Lucas sold Pixar to Steve Jobs for only $10 million. Jobs was passionate about building a company that made computer-generated films. Under Jobs, Pixar went to infinity and beyond. In 2006, he sold it to Disney for more than $7 billion!
Another great example was the Yankees deal completed by George Steinbrenner in 1973. In the early 1970s, the Yankees were owned by CBS. Because CBS was focusing on its broadcast business, the Yankees became neglected. Steinbrenner bought the Yankees for only $10 million. If you are a Yankee fan, you know Steinbrenner was passionate about the Yankees and wasn’t afraid to invest in them. Today, they are worth more than $3 billion.
Undervalued assets are the underdogs of the financial world. While it is hard to believe now, Pixar’s future was greatly in doubt in 1986. In fact, most people didn’t think it would survive. In 1973, the Yankees were underdogs as well. At the time, most people thought the Yankees’ glory days were over.
So if you want to find undervalued assets, you need to set your mind to search out and find the underdog. Believe it or not, watching movies will train your mind to do this. If you look at the most popular movies of all time, you will notice almost every one of them has an underdog theme.
- Avatar — The native people versus the highly-armed mining company.
- Titanic — The penniless artist versus the rich aristocrat.
- ET — Little kids versus the government.
- Star Wars — The rebel force versus Darth Vader and the Empire.
- Jaws — “You’re going to need a bigger boat.”
- Back to the Future — Marty McFly versus Biff.
- Jurassic Park — Small people, large dinosaurs.
- Die Hard -The cop with no shoes takes on the terrorists.
To sell high, you need to find a desperate owner. The reason why Jobs was able to get more than $7 billion for Pixar was because the buyer, The Walt Disney Company, was desperate for Pixar’s films. At the time, Disney Animation was in the toilet. Some of their bombs included Fantasia 2000, The Emperor’s New Groove, Treasure Planet and Atlantis: The Lost Empire. But even more important than their films, Disney desperately needed Pixar’s Chief Creative Officer John Lasseter to come over and rejuvenate Disney Animation.
So in summary, if you want to do deals like Steve Jobs, you need to buy an undervalued asset, fix it up and then sell it to a desperate buyer!