Billionaire Bill Gates Has $21 Billion In Only 2 Stocks

Billionaire Bill Gates doesn’t follow the pattern of investing that esteemed academics recommend. Any Ivy League business school in the country will advocate for diversification, so why then does Bill shun the advice of academics and put all his eggs into just a few baskets?

One answer is that it’s precisely the approach that made him rich. Betting on himself, and Microsoft, in the early days led to enormous wealth. Now that’s he’s at a different stage of life, though, shouldn’t he be spreading his wings a little wider and investing in a broader selection of stocks?

It turns out that Gates has followed the advice of his friend and legendary investor, Warren Buffett, quite carefully. When Buffett says, imagine you could buy just 20 stocks and hold them forever, he invites the listener to answer “which ones would you choose?” He goes on to say that if those were the conditions you would be very selective about your shortlist and very slow to actually buy.

It seems that Gates, who has held onto his holdings for a very long time period, has closely followed the advice, so which stocks made the cut?

Key Points

• 34% of Bill Gates’ Foundation’s portfolio is in the company he co-founded, Microsoft, amounting to $14 billion.
• 17% of his portfolio is allocated to Berkshire Hathaway, a monster free cash flow generating enterprise.
• All in all, 51% of his $42 billion portfolio is allocated to just two stocks, Microsoft and Berkshire Hathaway.

Microsoft

Remarkably, the Gates Foundation still owns 38 million shares of Microsoft, the company Bill co-founded decades ago. It shows that when you build a company with a wide moat, it’s best to stick with it over the long-term.

If all you do is look at the survivorship of S&P 500 companies over decades, many fail to stand the test of time. For a company to continually grow year after year, decade after decade, it must have an enduring competitive advantage, and that’s precisely the case with Microsoft.

So why diversify from a company with a wide moat in favor of a basket of firms that may not be nearly as well positioned to thrive long-term.

The enormous cash flows spawned by Microsoft have produced innovation in the cloud and more recently artificial intelligence.

As Microsoft continues to ride the waves of innovation, Gates and his Foundation are likely to see continued portfolio gains long-term.

Berkshire Hathaway

It’s no secret that Gates and Buffett are friendly, but surprisingly Buffett never bought Microsoft while Gates was willing to buy Berkshire. A full 17% of his portfolio is in Berkshire Hathaway, a real compliment to his friend given that only his own enterprise ranks above it in terms of portfolio standing – 34% of his portfolio is in MSFT.

Notably, Buffett has stated that he didn’t want to buy Microsoft because of optics and risk that he would be perceived to be trading on inside information as a result of his friendship with Gates. So his decision is no reflection on Microsoft as an investment candidate.

Berkshire, which generates about $24 million daily in interest income, and tens of billions in free cash flows is an absolute monster when it comes to what matters most, generating FCF. It’s no surprise that Gates has stuck with his position for so long and will likely do so for the foreseeable future.