 | The Investment U E-Letter: Issue # 475
Thursday, October 6, 2005
How to Be a Forbes 400 Billionaire… By Investing in Only One Stock
By Dr. Mark Skousen, Chairman, Investment U
"I make more money giving advice than taking it." ~ Malcolm Forbes The Forbes 400 Richest People in America issue just arrived in my mailbox last week… I pay careful attention to this issue when it comes out every October, for two reasons. The first is personal: I've met and befriended two dozen members of the Forbes 400 over the years. The second is professional: The list can teach me - and you - some valuable lessons. Here are three vital lessons that I gleaned from the latest issue… Forbes 400 Lesson # 1 Ever hear of Franklin Otis Booth, Jr.? He's the great grandson of Times Mirror founder Harrison Gray Otis. In 1963, he joined Charles Munger in a small real estate deal in Los Angeles, and met Warren Buffett. His original $1 million investment in Berkshire Hathaway (NYSE: BRK-A) is now worth $1.4 billion. I hear Mr. Booth likes to hunt and fish… Otis Booth is the only person to make it on the Forbes 400 list by being a passive investor. Your chances of imitating his success are very slim - the same as winning the lottery. I don't recommend putting all your eggs in one basket, even if that basket is managed by Warren Buffett. Yes, you can make millions by turning over your hard-earned wealth to a financial wizard. But there are two problems with this high-risk approach. First, it is highly unlikely that Berkshire Hathaway, a $127 billion fund run by a 74-year-old, can continue its incredible track record over the next 30 years. Second, because of problem #1, you will need to find the next Warren Buffett, and there's the rub. It ain't easy, as I pointed out in IU #473 - Mutual Fund History - the Terrible Truth. Finding the next Warren Buffett is like finding a needle in a haystack, and even if you luck out in finding him, will you have the guts to stay with him when he suffers a bad year or two? Forbes 400 Lesson # 2 Instead of investing in one fund and letting it sit there, why not be an active investor, switching from one hot investment to another? Warren Buffett fits this category, along with 33 other Forbes honorees. Buffett has been an active investor for 50 years, despite his statements to the contrary. He was once asked how long he was planning to hold Coca Cola stock in his portfolio. "Forever," he said. Yet, the truth is that Buffett buys and sells stock all the time in his company, and today's Berkshire Hathaway portfolio is quite different from what it was 10 or 20 years ago. You must be willing to change with the times to be successful over the long run. Forbes identifies a growing number of investment gurus or "money men" in its survey, a total of 66, or 16%, of the Forbes 400. The breakdown of their source of wealth is as follows: - Investments (34), including Warren Buffett.
- Hedge funds (12), such as George Soros and the Ziff brothers.
- Leveraged buyouts (seven), such as Henry Kravis and Ed Lambert.
- Mutual funds (six), including Edward Johnson III (Fidelity) and Michael Price (past owner, Mutual Shares).
- Money management (five), including new members Ken Fisher and Mario Gabelli.
- Investment banking (one) and brokerage firms (one).
Note that only 34 of the wealthiest Americans made it as pure investors, and all of them, except for Mr. Otis Booth, are active investors searching for maximum profits. The other half of the financial group made their billions not from managing their own portfolio, but from managing other people's portfolios. Ken Fisher, for example, a friend of mine, made the Forbes 400 list this year for the first time. He didn't do it by writing columns in Forbes or by buying stocks in his own personal account. He hit the jackpot by marketing Fisher Investments, his managed accounts in San Francisco. Admittedly, he has a good track record in picking stocks, but more importantly, through his aggressive advertising, he now manages $27 billion, and earns a tidy million dollars each year in management fees. Which brings me to the most important point… Forbes 400 Lesson # 3 Every issue of the Forbes 400 repeats the same lesson over and over again: The best way to build financial independence is through your own business. The evidence is overwhelming. Of the Forbes 400… only one made it as a passive investor. Some 33 wealthy citizens made it by being active investors. A larger number (around 40), inherited their wealth, but the inheritances came from successful businesses - David Rockefeller from Standard Oil, the Waltons from Wal-Mart, etc. The vast majority (294) made it by working overtime and building great businesses in insurance, oil, technology, consumer products, entertainment and real estate. And a surprising number did it from scratch (such as Subway founder Fred DeLuca, who started with $1,000, and is now worth $1.5 billion). The fastest way to amass a fortune is to create a highly profitable business and take it public. That what's the Google guys did. Larry Page and Sergey Brin made the list after going public last year, and are now worth $11 billion each. Today's Investment U Cribsheet - Discuss this articlein the Investment U Forum.
- This week I am traveling to the University of Alberta in beautiful Edmonton, Canada, to speak at a conference on Austrian economics, and then the following week, October 14-16, I will be at the San Francisco Money Show. I hope to see many of you there. Go to http://www.intershow.com/ for details, or call 800.970.4355. It's complimentary for IU readers.
- For additional reading, insight and investment recommendations, try out my newsletter, Forecasts & Strategies.
Good trading, AEIOU, Mark P.S. The September 23, 2005 IU E-Letter included a chart comparing interest rates and foreign central bank buying of Treasury notes. The chart was originally created by Bud Conrad for KitcoCasey, a terrific website for information on gold, silver and natural resource stocks. You can check it out by visiting: http://www.kitcocasey.com. Note, too, that Bud has more detailed explanations of the source and use of this indicator in the Archives. P.P.S. I just finished interviewing Steve Forbes at Forbes headquarters in NYC about the Forbes 400 list and his new book, The Flat Tax Revolution. I asked him if he qualified now as one of the Forbes 400 Richest People in America (minimum required net worth is $900 million) and he said candidly: "No longer! The Forbes fortune is now split between several siblings." I asked Forbes many tough questions about the economy, the stock market, the war in Iraq and the Bush Administration… Stay tuned for his surprise answers in the Thursday, October 13 Investment U column, including his answer to my final question: "What is the most important lesson you have learned in life?" Related Articles: Return to Archives
|
|
