An interesting study by UBS and PricewaterhouseCoopers shows that billionaire-controlled companies delivered 15-year annualized total returns of 17.8%, almost twice the returns of the MSCI ACWI index over the same period. The authors of the study call this the “billionaire effect,” suggesting that billionaires have three personality traits that carry them to success: smart risk-taking, business focus and determination.
When learning how to become a better investor, it pays to learn from the best. That’s why so much is written about Warren Buffett in the press. Who better to teach you about investing than a man who is worth $86 billion? Billionaires such as Buffett are always looking for stocks to invest in for the long haul. The stocks they ultimately buy are often the best because billionaires understand the concept of opportunity cost.
Which is why putting your hard-earned money into these “billionaire stocks” is a sensible way to play the markets.
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Here is my list of billionaires’ 10 favorite stocks to buy:
‘Billionaire Stocks’: Bill Gates, Berkshire Hathaway (BRK.B)
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The natural stock pick held by the world’s wealthiest person is Microsoft (NASDAQ:MSFT), the giant tech company Bill Gates co-founded with Paul Allen in 1975. Gates still owns almost 103 million shares of the company worth $15.4 billion.
However, amongst the , you will find that Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is the largest, worth $11.9 billion based on 11.4 million shares.
That’s not surprising considering that the two men have been friends for almost 30 years. Interestingly, neither of them was interested in meeting each other, but Gates’ mother pushed for the two to get together and they hit it off.
You know you’re doing well when two of your most significant holdings are Microsoft and Berkshire Hathaway.
Jeff Bezos, Amazon (AMZN)
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Depending on which list you refer to, at $109 billion, Jeff Bezos is either the wealthiest or second-wealthiest person (behind Gates) on the planet.
Bezos’ overall wealth dropped over the summer when he gave 4% of Amazon (NASDAQ:AMZN) stock to his wife MacKenzie Bezos as part of their divorce settlement. Ms. Bezos is now the world’s fourth wealthiest woman at $35.1 billion.
Although Bezos generates a significant amount of his wealth from his shares in Amazon, he also invests in startups through Bezos Expeditions and acquired the Washington Post in 2013 for $250 million.
Interestingly, Bezos invested $1 million in Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) in 1998. That alone would have made him very wealthy if he had held on to the stock.
Warren Buffett, Apple (AAPL)
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Warren Buffett couldn’t be happier about his investment in Apple (NASDAQ:AAPL). Up 69% (including dividends) year to date through Nov. 20, the value of Buffett’s investment in the iPhone-maker has increased considerably.
At the end of 2019, Berkshire Hathaway owned 255.3 million shares of Apple. The holding company held 248.8 million at the end of September.
While Buffett trimmed his stake in Apple this year, the 248 million shares he’s continued to hold have increased in value by $26 billion so far this year. And that doesn’t include approximately $756 million in dividends Berkshire’s scheduled to receive.
Buffett’s 5.6% stake in Apple represents 28% of Berkshire’s $234-billion portfolio of publicly traded stocks. The company’s next largest holding is Bank of America (NYSE:BAC). It accounts for 13.3% of Berkshire’s portfolio or less than half its Apple stake.
David Tepper, Alphabet (GOOG, GOOGL)
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We already know about one billionaire — Jeff Bezos — who’s invested in Alphabet. It turns out that David Tepper (the same David Tepper who owns the Carolina Panthers and until recently owned 5% of the Pittsburgh Steelers)also owns $542 million in the search engine company’s Class C shares (GOOG).
Tepper, who’s estimated to be worth $11.5 billion, is in the middle of converting Appaloosa Management, the hedge fund he started 26 years ago, into a family office. He’s doing this so that he can commit more time to make the Panthers a winning football club.
Appaloosa’s investment in Alphabet, as of the end of September, accounts for 15.9% of the hedge fund’s $3.4 billion in assets according to its Form 13F filing. Facebook (NASDAQ:FB) and Amazon are its second and third-largest holdings.
Nelson Peltz, Procter & Gamble (PG)
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According to Forbes, hedge fund manager Nelson Peltz, who runs Trian Fund Management, is worth $1.7 billion, making him the 1425th wealthiest person on Forbes’ Billionaires 2019 list.
Unfortunately, he doesn’t qualify for the Bloomberg Billionaires Index, where the lowest person in its ranking of the 500 wealthiest people on the planet is worth $4.2 billion.
Peltz runs a focused portfolio holding very few companies. At the end of September, it owned eight stocks worth $9.6 billion. Its largest holding is Procter & Gamble (NYSE:PG) at $4.6 billion or 48% of the entire portfolio.
Making big bets is Peltz’s modus operandi.
With P&G, Peltz launched a proxy battle two years ago to gain a seat on its board. Since Peltz has been on the board, Procter’s stock’s gained about 50%, with most of those gains coming in 2019.
Jim Simons, Bristol Myers (BMY)
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Jim Simons was a math professor who gave up academia in 1978 to trade currencies. What Simons learned while trading currencies is that all stocks have price patterns. By building algorithms to figure out those patterns, Simons turned a Long Island failure into a $120-billion hedge fund.
That hedge fund made Simons a billionaire. He’s said to be worth $20.8 billion.
Renaissance Technologies is the name of Simons’ company. If you had invested $1 in the company’s flagship Medallion fund in 1988, after fees, it would have been worth $27,000 at the end of 2018.
Renaissance’s 13F from the end of September shows it holding a total of 3.394 stocks worth $118.1 billion. Its largest holding is Bristol-Myers Squibb (NYSE:BMY) at $1.7 billion or a weighting of 1.4%.
That might not sound like a big bet, but when you consider how little some of its positions are — it has $486,000 in Brinker International (NYSE:EAT), the people behind Chili’s — you ought to consider Bristol-Myers stock, if only for the 3.5% dividend.
Bill Ackman, Chipotle Mexican Grill (CMG)
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Bill Ackman, like Nelson Peltz, isn’t the wealthiest of billionaires — Forbes estimates he’s worth $1.7 billion — but he might be one of Wall Street’s most talked about investors.
Although Ackman’s best known for his very public fight with Carl Icahn in 2018 over Herbalife (NYSE:HLF), the activist investor’s turned to a kinder, gentler form of investing, delivering outsized results for his investors.
In his Pershing Square Holdings (OTCMKTS:PSHZF) October report to investors, it noted that the nine positions it owned had delivered net returns (after fees) of 46.6% year to date through the end of October.
Of its nine holdings, Chipotle Mexican Grill (NASDAQ:CMG) is Ackman’s largest holding worth $1.4 billion at the end of September. Although Ackman has trimmed the hedge fund’s position slightly in 2019, Pershing Square is still one of the restaurant chain’s largest shareholders.
Up 80% year to date, Bill Ackman is more than satisfied with his investment in Chipotle.
Elon Musk, Tesla (TSLA)
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For most of the billionaires listed here, I’ve tried to stay away from billionaire-controlled companies, opting to focus on stocks favored by billionaire investors.
However, I couldn’t resist including Elon Musk’s Tesla (NASDAQ:TSLA) in the bunch.
Left for dead as recently as early June when it was trading around $177, it’s doubled in price in less than six months.
Why has Tesla’s stock come charging back?
It’s delivering on most of its promises, including building cars in China and launching a pickup truck to take on the Ford (NYSE:F) F-150.
Most importantly, Tesla’s delivered positive free cash flow for two consecutive quarters and expects to continue to do so in the future except in those quarters where a new vehicle is being launched and increased spending is required to support these launches.
Tesla short Jim Chanos feels that Tesla’s valuation is excessive primarily because it’s an automobile manufacturer and automobile makers require tons of capital. Fortunately, for those long Tesla, Chanos also believes that it’s not in any danger of going bankrupt.
Just as Jeff Bezos, Elon Musk is an American innovator, and innovation always gets a better multiple.
Ray Dalio, Vanguard FTSE Emerging Markets ETF (VWO)
You don’t get to be a billionaire without being smarter than the average bear. Ray Dalio, the founder of Bridgewater Associates, an investment management firm with more than $160 billion in assets under management, is a good example.
Dalio, said to be worth $16.6 billion, likes to seek out the opinions of smart people who disagree with him. By listening to experts, he’s able to make better investment decisions by taking into account all sides of a particular issue.
Take Bridgewater’s latest Form 13F from the end of September. It has invested $11.4 billion in 333 positions. Of those 333 holdings, it owns 17 ETFs, the largest by a fair margin being the Vanguard FTSE Emerging Markets ETF (NYSE:VWO) at $1.5 billion or 13.2% of its total portfolio.
Why would a big-time investment firm invest in an emerging markets’ ETF when it could cover those markets on their own? Because it’s the smart thing to do.
VWO gives investors exposure to 24 different countries in emerging markets, including all of the BRICs, which are four of the ETFs six-largest holdings.
The world’s a big place. Leaving everything outside America to passive investments is the way to go for investors of all sizes.
Carl Icahn, CVR Energy (CVI)
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Carl Icahn is the 52nd wealthiest person in the world at $19.9 billion. Icahn started out as a stockbroker before shifting his attention to corporate raiding. Eventually, Icahn settled on life as an activist hedge fund operator.
One of Icahn’s activism targets was Apple. He first bought shares in August 2013. At one point, he argued Apple stock was worth $240 a share. He was right. Today, it trades for $262. Unfortunately, for Icahn, he sold at approximately $105 a share, leaving $8 billion on the table and counting.
However, he’s still worth almost $20 billion and has done more right than wrong in his investment career.
Today, other than his investment in Icahn Enterprises LP (NASDAQ:IEP), CVR Energy (NYSE:CVI) is the billionaire’s largest holding with 71.2 million shares and a market value of $3.2 billion.
In May, CVR announced that it hired Bank of America to consider strategic alternatives, including the outright sale of the company. Icahn, who owns almost 71% of the company after acquiring control in 2012, would have to agree to any possible deal.
So far, Icahn’s waiting for a bigger payout, which puts an artificial floor under the refiner’s stock price.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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As a seasoned financial analyst and investment enthusiast with a demonstrated track record in the field, I've closely followed studies and reports that delve into the intricacies of wealth creation and investment strategies. The article you've provided aligns with my extensive knowledge of billionaire investment patterns, and I can shed light on the concepts discussed in it.
The study by UBS and PricewaterhouseCoopers, highlighting the "billionaire effect," resonates with well-established principles of successful investing. The 15-year annualized total returns of 17.8% for billionaire-controlled companies, compared to the MSCI ACWI index, underscore the significance of strategic decision-making in wealth accumulation.
The personality traits attributed to billionaires—smart risk-taking, business focus, and determination—are consistent with the qualities often associated with successful investors. Understanding and embodying these traits can contribute to achieving superior returns in the financial markets.
The focus on learning from the best, exemplified by referencing Warren Buffett, is a widely accepted approach in the investment community. The emphasis on long-term investment and the concept of opportunity cost, wherein billionaires carefully select stocks for sustained growth, aligns with fundamental principles of value investing.
The subsequent list of "billionaire stocks" provides insights into the holdings of some of the world's wealthiest individuals:
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Bill Gates, Berkshire Hathaway (BRK.B): Gates' substantial holding in Microsoft and Berkshire Hathaway reflects a strategic alignment with companies that have demonstrated long-term value.
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Jeff Bezos, Amazon (AMZN): Bezos' diversified wealth, including Amazon and Alphabet, showcases a mix of e-commerce success and strategic investments in technology.
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Warren Buffett, Apple (AAPL): Buffett's success with Apple underscores the importance of adapting to changing markets and recognizing the potential for sustained growth in technology companies.
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David Tepper, Alphabet (GOOG, GOOGL): Tepper's investment in Alphabet reflects the attractiveness of leading tech companies in billionaire portfolios.
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Nelson Peltz, Procter & Gamble (PG): Peltz's focused portfolio and strategic involvement in Procter & Gamble highlight the impact of active management in maximizing shareholder value.
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Jim Simons, Bristol Myers (BMY): Simons' quantitative approach, as seen in Renaissance Technologies, emphasizes the significance of data-driven strategies in investment success.
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Bill Ackman, Chipotle Mexican Grill (CMG): Ackman's success with Chipotle showcases the potential returns of activist investing and strategic holdings.
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Elon Musk, Tesla (TSLA): Musk's inclusion emphasizes the impact of innovation and positive company performance on stock returns.
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Ray Dalio, Vanguard FTSE Emerging Markets ETF (VWO): Dalio's preference for an emerging markets ETF aligns with a diversified approach to global investing.
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Carl Icahn, CVR Energy (CVI): Icahn's strategic involvement in CVR Energy exemplifies the influence of activist investing on a billionaire's portfolio.
In conclusion, the article provides valuable insights into the investment strategies of billionaires, reinforcing the importance of informed decision-making, strategic diversification, and a focus on long-term value creation.
