How to Become an Accidental Billionaire

Sometimes the best way to learn is simply to watch the masters, and then mimic what they do. But what if you're looking to learn how to "accidentally" turn $1 million into $1 billion -- and in just 35 years? And despite this brutal market?

Accidental billionaire?
In that case, I'd suggest you dig through your back issues of Forbes. About 10 years ago, the magazine ran an article about an "accidental billionaire" named Franklin Otis Booth Jr.

In the early 1960s, Booth tried to buy a printing company that contracted with The Los Angeles Times. The deal fell through, but he became good friends with the lawyer working on the case.

After discovering they had similar investment philosophies, they partnered up to build a 40-unit condo complex in Pasadena, Calif. -- and managed to double their money in just two years.

Booth decided he wasn't up for pursuing further real estate development, but he did agree to put $1 million into an investment partnership the lawyer put together. Thirty-five years later his stake was worth $1.2 billion -- despite multiple market crashes and prolonged bear markets.

How'd he do it?
You may already know where I'm going with this, but either way I'd suggest you stick with me. After all, who among us doesn't want to learn how to "accidentally" increase the value of our portfolio 1,000 times over just three decades?

The cynics and risk-takers among you will undoubtedly chalk Booth's success up to "luck."

Granted, his is a case of being in the right place at the right time, but the actual process that grew his fortune had very little to do with luck.

He didn't dump his money into penny stocks that took off. He didn't get in on the ground floor of EMC (NYSE: EMC  ) or Sun Microsystems (Nasdaq: JAVA  ) . He didn't make smart options trades.

And he was already a billionaire long before anyone was talking about PotashCorp (NYSE: POT  ) or Chesapeake Energy (NYSE: CHK  ) .

Things are about to get boring
What he did do was hand his $1 million over to that lawyer and a "clever young fellow." They, in turn, made big bets on unexciting businesses with wide moats that were selling at a discount to their fair value. These businesses all had strong brands, outstanding returns on capital, consistent or improving profit margins, and substantial cash profits.

That's all -- big bets on great companies selling at good prices.

Among their biggest winners were Coca-Cola, Washington Post -- which turned $11 million into $1.3 billion between 1973 and 2006 -- and Wesco Financial, which was run by Booth's lawyer friend and returned nearly 200 times its investment over a 31-year period.

Of course, by now I'm sure you know that the lawyer was Charlie Munger and the clever young fellow he teamed up with was none other than Warren Buffett. But here's something you may not know ...

How you can do it, too
Even if you don't have $1 million to invest, you can drastically increase your wealth by following Buffett's lead and buying great business when they're selling at good prices.

Just take a look at this data from Jeremy Siegel's book The Future for Investors. These are the top 10 "survivor" stocks of the original S&P 500, from inception until post-2000, along with the average annual return you would have secured had you held these rock-solid, well-known, well-run businesses in your portfolio.

Company

Annual Return

Average Price-to-Earnings

Altria

19.8%

13.1

Abbott Laboratories (NYSE: ABT  )

16.5%

21.4

Bristol-Myers Squibb (NYSE: BMY  )

16.4%

23.5

Tootsie Roll Industries

16.1%

16.8

Pfizer

16%

26.2

Coca-Cola

16%

27.4

Merck

15.9%

25.3

PepsiCo

15.5%

20.4

Colgate-Palmolive

15.2%

21.6

Crane (NYSE: CR  )

15.1%

13.4

Source: Jeremy Siegel, The Future for Investors. Returns with dividends reinvested.

Follow the leader
If you need a little help finding great companies selling at good prices, you might want to consider taking a free, 30-day trial to Motley Fool Stock Advisor.

After all, Motley Fool co-founders David and Tom Gardner have spent years studying masters like Munger and Buffett, and they've dedicated themselves to uncovering America's best businesses -- the kinds of businesses that can grow your wealth by 15% or 20% annually.

Among their more recent picks is Coach, the world-renowned maker of luxury handbags. While Tom Gardner has long admired Coach's business -- especially its strong brand, healthy international growth, and dedicated management -- until recently, he felt the stock was just too pricey.

But with retail stocks taking a major beating over the past few months, Coach now represents a great business selling at a good price, leading Tom to conclude, "A premier international fashion brand trading at a heavy discount? Sounds like the perfect addition to our scorecard." And it could be a great addition to your portfolio, too.

To see all the great businesses David and Tom are recommending to their Stock Advisor members -- including their two top picks for new investment money -- simply click here to begin your free trial. There is no obligation to subscribe.

This article was originally published Aug. 13, 2008. It has been updated.

Austin Edwards owns shares of Coca-Cola and Altria. Coach is a Motley Fool Stock Advisor recommendation. Coca-Cola, Chesapeake Energy, and Pfizer are Inside Value recommendations. Pfizer is an Income Investor recommendation. The Motley Fool owns shares of Pfizer. The Motley Fool has a disclosure policy.


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