The following is an analysis of the most current portfolio of Mr. Bill Gates. The analysis will use a system that I designed that is based on the ratio that Mr. Warren Buffet released to the public in 1986, which he coined “Owner Earnings.” For those new to this type of analysis, I would recommend reading an introduction to my system HERE.
My goal is ultimately to analyze the portfolios of each guru highlighted here on GuruFocus, and then to subsequently re-analyze them every quarter when possible as changes are made. My purpose in writing these articles is to show the power of Mr. Buffett’s ratio in analyzing stocks, ETFs, mutual funds and individual portfolios. If one can fill their portfolios with companies that score high using my system and avoid those which fail, one should be able to increase the probability of becoming a successful investor in my opinion. Guru Focus Profile of Mr. Gates:
Bill Gates is one of the smartest businessmen in the world. He founded Microsoft (NASDAQ:MSFT) and grew it to the world's largest software maker and monopolized the PC world. Bill Gates was the richest man for 15 consecutive years.
Warren Buffett once said that Bill Gates can do what he does and he cannot do what Bill Gates does. Bill Gates now sits on the board of Berkshire Hathaway (BKR.A)(NYSE:BRK.B), and owns a few percent of Berkshire shares. The portfolio we track here before June 2009 is called Cascade Investment, which is the personal portfolio of Bill Gates. The portfolio is managed by Michael Larson.
Edit: Since June 2009, the portfolio we track is for Bill & Melinda Gates Foundation Trust. It is still managed by Michael Larson.
Yesterday I started this series by analyzing Mr. Buffett’s portfolio. Today we tackle his good friend’s portfolio and though the portfolio is managed by Mr. Larson ( we actually have no clue how much time Mr. Gates puts into managing this portfolio, if any at all), thus I will reference both men in the article:
The following table is the most current portfolio of the Gates Foundation:
From looking at this portfolio it seems that Mr. Gates/Larson like to invest using various styles and methodologies. They definitely like to invest in Washington state companies as they have positions in Costco Wholesale (NASDAQ:COST), Expedia (NASDAQ:EXPE) and Expeditors International of Washington (EXPD). Besides that we have deep value and high growth plays mixed together with some Mexican stocks thrown in as well. You have highly speculative bets like Eastman Kodak (EK), which went bust on them recently and then Bill Gates must be good friends with Dr. John Malone as you have his Liberty Global represented (NASDAQ:LBTYA) in the portfolio.
One thing that really stands out is that you would think that the portfolio of one the greatest geniuses in the field of technology would contain multiple high tech firms, but we failed to find any. What is also very confusing is that why the person who built Microsoft (NASDAQ:MSFT) from scratch, basing his operations on amazing cost controls and low debt, would not concentrate in investing solely in low-CapFlow names. The portfolio is actually filled with capital intensive businesses with high levels of debt and exactly half the portfolio fails our CapFlow test by having CapFlows greater than 50%. One of the key mistakes that investors make is to invest in companies that require a lot of capital expenditures in order to run them.
Here is a table of the CapFlows of Microsoft going back to 1993:
The data clearly shows that the man who founded Microsoft and who achieved one of the all-time best records of CapFlow management in history, has half of his foundations portfolio in high CapFlow stocks. This is why you see so many zeros and ones as final scores in our analysis, which is the opposite of Warren Buffett’s portfolio, which is full of 2s and 3s. The reason is that the CapFlow numbers of many of the stocks in Gates’ portfolio stink and when management has a poor record of cost controls, FROIC and price to owner earnings will suffer as well.
One company in this portfolio that I also own for my clients is Ecolab (NYSE:ECL) and it is one of the best companies I have ever seen from a Philip A. Fisher qualitative analysis point of view. I can say this because the company has a strong tradition of elite managers running the firm.
Want to see some impressive long-term performance? Then try this on for size:
So except for Ecolab and maybe Coca-Cola (NYSE:KO) and McDonald's (NYSE:MCD) I am not very impressed with the portfolio's holdings from an owner earnings point of view. In fact I would sell 50% of the holdings immediately and replace them with some high FROIC/low price to owner earnings companies.
We conclude each guru analysis by ranking each guru’s portfolio against the others, so here are the final scores for the two analyses done so far.
The final score is a non-weighted average of each portfolio’s total score divided by its total holdings. As you can see from the table above, Mr. Buffett is doing a much better job than the Gates/Larson team is doing.
Disclaimer: Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone’s work without doing your own due diligence or by seeking the help of an investment advisor, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.
About the author:
From his work on free cash flow in the investment process, Mycroft has now decided to bring his theories to the field of money management as well as work as an independent consultant for Hedge Funds, Pension Funds and ...More Institutions in general. His dream is to someday soon open a mutual fund where he can help as many people as he can benefit from what he has learned over the years.