Finding out what a billionaire is doing with his or her money can be a great tool to finding areas of the market that are likely to perform well going forward. And in the vast majority of cases, investing billionaires became wealthy by focusing on a select handful of businesses that have performed extremely well on their watch. In other words, they became wealthy by putting all of their eggs in one (or just a few) basket and watching that basket very closely. Many have diversified their personal holdings but continue to hold concentrated stakes in their firms. (Learn when you will become a billionaire at your current income, check out What's Your Billionaire Age?)
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The fact that the businesses billionaires run have become so large that many operate on a global scale, which means there are insights to be found in many countries and industries around the world. Better yet, many of the underlying firms are publicly traded and can be purchased by individual investors. Below are profiles of five billionaires that were also in the top five in terms of overall wealth according to the most recent annual ranking in Forbes. We'll look at how they have positioned the portfolios they control.
Carlos Slim became a billionaire as a business man and his wealth remains concentrated in the companies he owns or is building ownership stakes in. His holdings consist of Mexican telecom firms Telefonos de Mexico (Telmex) (ADR NYSE:TMX) and American Movil, the first of which he acquired when the government privatized the business. He also has ownership stakes in American firms including Saks Inc. (NYSE:SKS) and New York Times (NYSE:NYT).
In a recent interview, Slim provided an investment outlook for 2011 and details on where he is investing. He has targeted Colombia for oil and gas investments because of the country's increased stability and openness to foreign investors. Many of his investments trade publicly so can easily be tracked and bought by individual investors, though he also has sizable stakes in private firms throughout the Americas.
It's widely known that Bill Gates created his wealth by founding Microsoft (Nasdaq:MSFT). Lately though, his focus has shifted to running the Bill and Melinda Gates Foundation and he also has an investment vehicle called Cascade. Both have assets that can be tracked for details on investment holdings and areas of the market that Gates and his minions find appealing.
The Cascade vehicle invests in a diversified base of holdings. Recent investments include auto dealer AutoNation (NYSE:AN), Warren Buffett's Berkshire Hathaway (NYSE:BRK.A), waste management firm Republic Services (NYSE:RSG) and an inflation-linked securities and income fund managed by Western Asset/Claymore. For the past couple of years, Gates has published an annual letter where he provides details on his philanthropic initiatives and some economic insight. A recent filing with the Securities and Exchange Commission (SEC) details stock holdings that overlap with the Cascade ones above, as well as stakes in Mr. Slim's American Movil.
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Warren Buffett is one of the most widely tracked investors and has always pursued a concentrated strategy to creating his vast wealth. As his wealth has grown, he has had to diversify and now owns dozens of businesses as part of Berkshire Hathaway. He has also given a large amount of his wealth to Gates to manage in his foundation. Public holdings include Coca Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Washington Post (NYSE:WPO) and American Express (NYSE:AXP). Companies owned by Berkshire include Geico Insurance, Dairy Queen and Nebraska Furniture Mart.
Mukesh Ambani is an Indian business man at the helm of Reliance Industries, which is one of the largest conglomerates in the world. Reliance boasts of holdings spanning energy and materials, including steel as well as oil and gas exploration and production. The Reliance annual reports offer great insight into Mr. Ambani's thinking on the markets and, given most of his wealth is wrapped up in the business, it drives his personal portfolio.
In the latest letter, he stated that India's best years are ahead of it and it could become the fastest growing country in the world within a few years. As the largest firm in India, Reliance has seen record sales and profits and is worth tracking for insight into areas of India and Asia that have the most investment appeal. (Learn more in Introduction To Asian Financial Markets.)
Mr. Mittal oversees Arcelor Mittal (NYSE:MT), the largest steel firms in the world. The growth of his business has made him the richest person in Europe, where he moved after growing up India. His firm is credited with inventing mini-mills and rapidly consolidating the global steel industry.
Like Mr. Ambani, Mittal's investment insight can be found in his annual shareholder report. The most recent letter demonstrates that steel is very economically sensitive as, back in 2009, demand fell by half during the global economic downturn. He also said that investing in developed markets is as important as growing in developing ones. That said, markets including India and China stand out for their upside potential, especially as the latter builds out its infrastructure and demands vast amounts of steel to do so. (learn about investing in Asia, read Top 6 Factors That Drive Investment In China.)
The Bottom Line
Billionaires created their wealth by focusing on running businesses that they created or took over from family members. Given their backgrounds, it is understandable that they continue to focus their personal wealth in their businesses. Instead of spreading their investments across different classes or asset allocations, their diversification has come through adding new businesses and geographies to operate in, and individual investors can gear their portfolios with many of the same firms these billionaires own.