How Billionaires Invest

By Richard Gibbons
May 5, 2007

When I look at Forbes’ list of the world’s billionaires — a.k.a. the list of people who make more in a day than I have in my entire lifetime — it becomes quite clear that there are two ways to make stupidly large amounts of money. Either build a company that grows to be worth billions, or become a successful investor.

Frankly, creating a billion-dollar business sounds hard. So let’s ignore Bill Gates, and look at Nos. 2 and 3 on the list. There, you find Warren Buffett and Carlos Slim.

A tale of two billionaires
Now, most people know Buffett. He’s a value investor who walks right by the overhyped, exciting investments and heads straight for the boring, ugly, beaten-down stocks in the bargain bin. He buys newspapers. And paint and carpet companies. And when he’s feeling particularly frisky, he’ll buy an underwear manufacturer.

Yet this fellow made himself billions. Go figure.

The third person on the list, Mexico’s Carlos Slim, is far less familiar. He’s noteworthy not just for his $53 billion fortune but also as the person who gained the most wealth in the last year ($19 billion). In fact, Slim’s net worth is still setup online credit card processingchase credit card home pagecitibank secured credit cardunsecured visa credit cardbad business card credit credittip on credit card consolidationno credit check credit card,canadian card check credit credit no,card check credit credit fee no nobalance card consolidat credit transfer,0? balance card credit transfer ?,credit card balance transfershell gas credit cardcard consolidation credit debt v ?,card consolidation credit debt keyword? ?,credit card debt consolidationcard credit offer visa,visa credit card offermobil gas credit card,gas credit card,poor credit gas cardsecured credit card applicationcapital one bank credit cardpay pal credit card,card credit pal pay virtual,card com credit pal pay paymentinstant decision credit cardcredit card processing machine,card credit machine processingcard credit high risk ukapplication card credit providian,providian credit card applicationchase credit card online,chase credit card online logonuk lowest interest credit cardmerrick bank credit cardfree prepaid visa credit card,prepaid credit card,american express prepaid credit cardpremier bank credit cardaccept credit card onlinesecured credit card canadaapply for a credit card,apply capital card credit one,apply canada card creditbest cash back credit cardbad card credit creditcredit card debt debt consolidationapr card credit interest low,application apr card credit low,low apr credit cardchristian download free ringtonesdownload free polyphonic ringtones,polyphonic ringtones,free hindi polyphonic ringtonesfree ringtones for nextel phonefree logo nokia phone ringtones,free nokia phone ringtones,free ringtones for sprint phone nokia 3588ifree ringtones for cricket phonemobile ringtones composer,1110 composer nokia ringtones,ringtones composerfree cingular wireless ringtonesmusic real ringtones ringtonesphone ringtones samsungfree real music cingular ringtonesmake ringtones,program to make ringtones,custom make ringtonesdownload free mobile ringtones tfree ringtones and wallpaper,free ringtones wallpaper screensaver,free nokia ringtones and wallpapernextel midi ringtones,midi ringtones,free nokia midi ringtoneschristian music ringtonesnokia 3560 polyphonic ringtones,6560 nokia polyphonic ringtones,nokia polyphonic ringtonesmobile phone ringtones uk,mobile phone ringtones,cheap mobile phone ringtonescell free phone prepaid ringtonesmp3 nextel ringtones growing at a phenomenal pace: Since Forbes’ list was released in February, Slim has earned an additional $4 billion and overtaken Buffett as the second-richest man in the world. To make that money, surely Slim would have to be in some really exciting businesses?

Umm, no. Slim has been in cigarettes, real estate, soda bottling, auto parts, and insurance. He’s owned slow-growers such as Altria (NYSE: MO) and Saks (NYSE: SKS), and he has a major stake in Latin American telecom America Movil (NYSE: AMX).

How they did it
So how the heck did these guys make so much money in such boring industries? By following two simple rules:

Buy companies when they’re cheap.
Focus on excellent businesses.
Buffett made a fortune when he bought loads of Coca-Cola at incredibly low prices in 1988. Although the company was struggling with its acquisition of Columbia Pictures, Buffett recognized that Coke still had a solid brand and was dirt cheap.

Slim’s first huge opportunity came during Mexico’s 1982 economic crisis. When international investors fled in panic, Slim noted that “the low value of many enterprises was even more irrational than the pessimism in the business community.” He bought and reaped immense profits.

At this point, Bill Gates is looking kind of lonely, so let’s go back to him.

Everyone knows that Gates made his billions by founding Microsoft. But if you’ve ever looked at his personal stock portfolio, the names would surprise you. He’s owned names such as Pan American Silver (Nasdaq: PAAS), Schnitzer Steel (Nasdaq: SCHN), and Avista (NYSE: AVA). The first company is, surprisingly, a silver miner. Schnitzer recycles metal, while Avista is a Washington-based electric utility. At this point, it should be obvious. Bill Gates is into boring value stocks, too.

The Foolish bottom line
Now, there’s a reason that the top three billionaires on this list are value investors. It’s because they know that value investing simply outperforms all other types of investing.

That’s why it pays to always be on the lookout for value stocks, particularly when the market gets volatile. Buffett and Slim made some of their most successful investments by buying when everyone was panicking. You can too.

If you’re looking for assistance identifying the best opportunities, our Inside Value newsletter can help. Every month, we recommend the two best value stocks we can find. You can see all our recommendations — including this month’s top picks — with a free pass here.

This article was originally published on April 2, 2007. It has been updated.

Fool contributor Richard Gibbons would make the list if they would just expand it by another 500 million people. He does not have a position in any of the stocks discussed in this article. Coca-Cola and Microsoft are Inside Value recommendations. The Motley Fool has a disclosure policy

This is taken from Napolean Hill’s greatest book, Think and Grow Rich

(Capitialist) pioneer, experiment and blaze trails in new fields of endeavor. They support colleges, hospitals and schools, build good roads, publish newspapers, pay most of the cost of government, and take care of the multitudinous detail essential to human progress. Stated briefly, the capitalists are the brains of civilization because they supply the entire fabric of which all education, enlightenment and human progress consist.

Money without brains is always dangerous. Properly used, it is the most important essential of civilization. A simple breakfast for a city family consisting of grapefruit juice, cereal, eggs, bread and butter and tea with sugar could not be provided at a reasonable price if organized capital had not supplied the machinery, the ships, the railways, and the huge armies of trained people to operate them.

Ships and railways do not spring up from the earth and function automatically. They come in response to the call of civilization, through the labor and ingenuity and organizing ability of people who have imagination, faith, enthusiasm, decision, and persistance! These people are known as capitalists. They are motivated by the desire to build, construct, achieve, provide useful service, earn profits and accumulate riches. And, because they provide service without which there would be no civilization, they put themselves in the way of great riches.

Just to keep the record simple and understandable, I will add that these capitalists are the selfsame people of whom most of us have hear soapbox orators speak. They are the same people to whom radicals, racketeers, dishonest politicians and union leaders refer as “the predatory interests.”

“Big business,”"capital predatory interest” or whatever name you choose to give the system which as given us freedom represents a group of people who understand, respect and adapt themselves to this powerful law of economics. Their financial continuation depends upon their respecting the law.

If one has superior talent, training, or experience, one may accumulate riches in large amounts. Those not so fortunate may accumulate smaller amounts. Anyone may earn a living in return for a very nominal amount of labor.

So-there you are!

You can depend upon this much- CAPITALISTIC SOCIETY GUARANTEES EVERY PERSON THE OPPORTUNITY TO PROVIDE USEFUL SERVICE AND TO COLLECT RICHES IN PROPORTION TO THE VALUE OF THE SERVICE.

-Napoleon Hill

A judge has effectively barred Internet phone carrier Vonage from signing up new customers as punishment for infringing on patents held by Verizon, though the company will be allowed to continue servicing existing customers. Vonage is planning to appeal.

read more

Have you ever wondered what could frustrate Wal-Mart more than having their own South Park episode…the answer - New York City. This excerpt is from the New York Times:

Frustrated by a bruising, and so far unsuccessful battle to open its first discount store in the nation’s largest city, Wal-Mart’s chief executive said yesterday, “I don’t care if we are ever here.” H. Lee Scott Jr., the chief executive of the nation’s largest retailer, said that trying to conduct business in New York was so expensive— and exasperating —that “I don’t think it’s worth the effort.”

Speaking about what he sees as snobbish elites in New York and across the country, Mr. Scott added, “You have people who are just better than us and don’t want a Wal-Mart in their community.”

People in New York City may seem snobby to Wal-Mart CEO H. Lee Scott, Jr. but they still have buying power, which now will go to the Wal-Mart competition.

Wal-Mart Chief Writes Off New York [New York Times]

MINNEAPOLIS, March 27, 2007—Best Buy Co., Inc. (NYSE: BBY) has agreed to acquire Speakeasy, Inc., one of the largest independent broadband voice, data and IT service providers in the United States. This move strengthens Best Buy’s technology portfolio in the small business space, delivered through the company’s Best Buy For Business unit.

Best Buy anticipates a closing date for the transaction in the first quarter of its 2008 fiscal year. Following the close, Speakeasy would operate as a wholly owned subsidiary of Best Buy. The company disclosed the purchase price of approximately $97 million, which represents approximately 1.2 times Speakeasy’s calendar year 2006 revenue of $80 million. Best Buy currently expects the transaction to be neutral to fiscal 2008 earnings.

“Best Buy For Business is all about helping small businesses grow or operate more efficiently through technology. By joining forces with Speakeasy, a company with a true passion for helping entrepreneurs run their businesses, we are making technology more accessible to small businesses by creating a single source for their IT needs,” said Darren Jackson, Best Buy executive vice president and CFO. “For small businesses and tech-savvy professionals, Speakeasy offers innovative IT and communications services, backed by outstanding network reliability and terrific customer support. We understand the small business customer and know that managing multiple service providers can be challenging. With Speakeasy in our portfolio, we are better equipped to provide our small business customers with one-stop shopping for all of their technology needs. Our goal is to provide small businesses with the resources they need so that they can focus squarely on their customers instead of on technology.”

Read the rest of this entry �

(Business 2.0 Magazine) — We all know the drill: To make sure you have enough green for your golden years, you’re supposed to max out your 401(k) contributions, invest in index funds and growth stocks, and not - repeat, not - splurge on that top-of-the-line Ferrari. All sound advice.

But where’s the fun in that? And what about now, when you’re actually, you know, living your life?

Well, we believe it’s possible to both live the good life and turbocharge that retirement account. In the articles linked below, you’ll find ideas for investments and startup opportunities you won’t see reported in the business section of your daily newspaper.

Like locking up rights to wind-farm and solar-power sites and then leasing them back to renewable-energy companies. Or snapping up a sampling of the works of today’s underground artists for a surprisingly quick and profitable payoff. Or investing in real estate in places where supermodels lounge on the sand and beach houses can still be had for six figures or less. Want a preview? Aim Google (Charts) Earth at Punta del Este, Uruguay.

Maybe you’d like to go into business for yourself, or just want to ride the next wave. Think organic fast food, online luxury-goods rentals, and pet health insurance. And take a look at cooking schools for kids and upscale retirement communities.

Sure, your accountant might raise her eyebrows, but that’s OK - while you’re waiting for your 401(k) balance to grow, nothing says you have to sit around and watch the grass grow too.

Consider these five options:

• Going global: Buy real estate in exotic locales.

• Power play: Snap up rights to wind and solar sites.

• Collecting profits: Invest in unknown artists.

• Getting on the farm: Cash in on these crops.

• Franchise this: Be your own boss.

Who doesn’t like to party and hear live music, enjoy a cocktail or gamble? I know a Capitalist would.

But wouldn’t it be great if you could do all these for a worthy cause? Of course, a Capitalist would love to give back to the community.

People may be attracted to benefit events for the celebrities, the networking opportunities or even the food, but the good that comes out of them is immeasurable, regardless of motivation.

This article from TheStreet.com is a great example of how the Capitalist can give with an open heart, yet not show a loss.

READ MORE

The reason why you aren’t a millionaire (or on your way to becoming one) is really simple. You probably assume it’s because you aren’t earning enough money, but the truth is that for most people, whether or not you become a millionaire has very little to do with the amount of money you make. It’s the way that you treat money in your daily life.

READ MORE

A great collection of essential books on personal finance topics. These books offer a wide view, discussing many aspects of money. They offer advice about saving, investing, and getting out of debt. They don’t go into much detail about any one subject, but they provide motivation to get started. And that’s what’s most important.

READ MORE

Startups always make mistakes, it’s part of the process. But here’s a list of the 5 most common ones that you should be able to avoid.

READ MORE