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