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Rupert Hargreaves
Rupert Hargreaves
Articles (1406)  | Author's Website |

The Common Traits of Bill Gates' and Warren Buffett's Portfolios

A look at the advantage of these two investors

The investments and strategies of the world's most successful investors, such as Seth Klarman (Trades, Portfolio), Warren Buffett (Trades, Portfolio), Charlie Munger (Trades, Portfolio) and Ray Dalio (Trades, Portfolio), are widely known among the investing world. However, successful business owners' strategies are usually not as frequently covered.

Business owners such as Bill Gates (Trades, Portfolio) and Jeff Bezos might not be considered great investors in the stock market sense, but they certainly are in terms of allocating capital. Gates and Bezos have to make investment decisions daily. The only difference is that these decisions are not typicallyfocused on public equities.

We do have some insight into the public equities Gates might buy, however. The Bill & Melinda Gates Foundation Trust owns $22 billion worth of securities. Wealth manager Michael Larson is in charge of the investment portfolio, as well as Gates' own personal investments. The billionaire is likely to have some input himself.

Given these considerations, I thought it would be useful to compare the investment strategies of Buffett with those demonstrated by Gates' trust. Let's take a look.

Foundation holdings

The largest holding in the portfolio of the Foundation Trust at the end of September 2020, according to its latest 13F filing, was Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) - 45% of the portfolio's assets were allocated to this one stock.

However, declaring this Gates' favorite investment would be a bit misleading. Berkshire's founder, Warren Buffett (Trades, Portfolio), has pledged to give the Foundation a large percentage of his wealth with Berkshire shares. These recurring gifts began years ago. As such, it's likely a good portion of this $10 billion position was gifted.

Even the Berkshire holding is small compared to Gates' holding of Microsoft (NASDAQ:MSFT) stock. He remains one of the company's largest investors, owning around 1.5% of the equity. It's worth around $20 billion, twice as large as the Gates' foundation position in Berkshire.

Excluding these outlier circumstances, I think the smaller positions can give us more insight into the kinds of businesses the Foundation Trust and its managers want to hold.

The second-largest holding after Berkshire is Waste Management Inc. (NYSE:WM). Around 10% of the portfolio is devoted to this one holding, making it a $2.1 billion position.

As its name would suggest, Waste Management manages and processes waste. This isn't a growth business. Profits have grown by a CAGR of 5% since 2014. Nonetheless, the business is stable. Profits and the company's dividend have grown steadily year after year.

The third-largest holding, coming in with an 8.3% portfolio weight, is Canadian Natl Railway Co. (NYSE:CNI). This appears to be yet another slow and steady business. The next holding is Caterpillar Inc.(NYSE:CAT), followed by Wal-Mart (NYSE:WMT). Holdings in both of these enterprises weigh in at around $1.6 billion.

One thing that links all of these holdings and immediately stands out to me is that they are all relatively defensive companies with economies of scale and robust competitive advantages. Setting up a waste management, railroad, construction equipment firm or retailer business is not easy. In the case of waste management and railroads, it is virtually impossible without a bottomless pit of money. The overriding goal appears to be wealth preservation over capital growth or even income.

This is very similar to the approach Buffett has followed for years at Berkshire - allowing for upside while limiting downside risk as much as possible. Considering how close the two investors are, it's not surprising there is some overlap between their investment styles, even if the positions are different.

Moving down the list of holding in the Foundation Trust's 13F, it becomes clear that Gates is much more open than Buffett to investing in technology. That's understandable considering his background. The Foundation owns holdings in tech companies such as Twitter (NYSE:TWTR), Uber (NYSE:UBER) and Alibaba (NYSE:BABA). Gates knows more about technology than any other sector, and that shows in the portfolio.

Disclosure: The author owns no share mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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