On March 5, 2014, Mark Hulbert writes on MarketWatch:
In a roundabout way, the latest Forbes magazine ranking of the world’s billionaires can help you become a better investor.
But not by catering to your greed in hopes that someday you too could be on that rarefied list of the super-super wealthy.
Meet the world’s top five billionaires
Former Microsoft Chairman Bill Gates has made it back to the top of the Forbes’s billionaires list. MarketWatch’s Jim Jelter tells us who else made the top five of the list. (Photo: AP)
Instead, when properly interpreted, the Forbes list helps us to become more realistic about what is possible through investing. And that, in turn, should refocus our energies on what truly produces great wealth.
It is not the stock market.
In fact, the most common way to get on the Forbes list is to start a company. Coming in a distant second is inheritance.
What about investing? Did anyone make it onto the list by following shrewd investment strategies, parlaying a small portfolio on Wall Street into a nine-figure sum?
No.
To be sure, most of the world’s billionaires have major investments in equities around the globe. But my impression, having been a student of the Forbes wealth rankings for more than two decades, is that most of those billionaires go to the stock market after they already have made their fortunes.
Their attitude towards the stock market is not so much that it’s a place where great wealth is built, but instead where you go to preserve the purchasing power of your previously-acquired fortune. (Full disclosure: I wrote a column for Forbes in the 1980s and 1990s, though I had no role in compiling the billionaires’ list.)
What about Berkshire Hathaway’s BRK.A +0.32% Warren BRK.B +0.31% Buffett, who is 4th in the latest Forbes ranking, and widely credited with being the most successful investoralive? Didn’t he build his fortune through investing?
I’m not sure. And even if he did, it’s not clear how much you can generalize — since you would need to already have a profitable insurance operation whose float can finance a highly-leveraged strategy of acquiring some companies and heavily investing in others .
In any case, even if you somehow could match Buffett’s long-term record, it still will be difficult to make it onto the Forbes list. The book value of Berkshire Hathaway has grown at a 19.7% annualized rate since he acquired he company in 1965. Try guessing how much money you have to start with in order to become a billionaire when you retire at age 65 — assuming you started investing right out of business school at age 25.
Give up? You would need to start with a portfolio already worth $12.1 million. Good luck with that. If you’re trying to make it onto the Forbes list by being a shrewd investor, perhaps the surest path is to be born to rich parents .
What about all those emails promising triple-digit investment returns? Call me first if you’re inclined to believe any of them — I have a bridge I want to sell you.
My Hulbert Financial Digest for more than three decades has been tracking the advisers making those kind of claims, and I can assure you that none — zero — produce triple-digit returns over long periods of time. Even high-double-digit returns are sheer fantasy. Over the last 30 years, for example, the adviser in first place has produced a 13.6% annualized return.
If you really want to act and think like a billionaire, focus your entrepreneurial energies on producing something that the world needs. The stock market will be there after you make your fortune.
http://www.marketwatch.com/story/how-to-invest-like-a-billionaire-2014-03-05
