The Death of the American Billionaire

It's not easy being Bill Gates.

First, Yahoo! (Nasdaq: YHOO  ) rejected Microsoft's (Nasdaq: MSFT  ) $44.6 billion buyout offer. Then Gates got absolutely worked in a Guitar Hero competition with Slash. And finally, Gates lost his title as the world's richest man to his sometime bridge partner Warren Buffett. Can things possibly get any worse for the brainiac billionaire?

Actually, they can.

Many people were shocked to see Gates knocked from his No. 1 ranking after 10 years atop Forbes' list of the world's billionaires. (With a net worth of $58 billion, Gates currently ranks third behind Buffett and Mexican telecom baron Carlos Slim.)

But for those who are familiar with Forbes' rankings, the real surprise was not that Gates fell -- but that he didn't fall farther.

Land of the free, home of the billionaires
For the past decade, Forbes' billionaires list has been as American as apple pie. Gates and Buffett have vied for the top spot, typically followed by the likes of Paul Allen, Dell (Nasdaq: DELL  ) founder Michael Dell, Oracle (Nasdaq: ORCL  ) founder Larry Ellison, and Las Vegas Sands (NYSE: LVS  ) chairman Sheldon Adelson.

But in recent years, the upper echelons have been invaded by international businessmen who are growing their fortunes at an astonishing clip. In the past five years, Slim has increased his net worth eight-fold, thanks to the stellar performance of Latin American telecoms like America Movil (NYSE: AMX  ) . With a fortune currently worth $60 billion, Slim has surpassed Gates and is nipping at Buffett's heels.

Meanwhile, a trio of Indian businessmen lurks behind Gates, poised to leapfrog into the top three slots. Over the past two years, shares of Luxembourg-based steelmaker ArcelorMittal (NYSE: MT  ) have doubled, helping CEO and 11% shareholder Lakshmi Mittal add $21 billion to his net worth.

As impressive as that feat may be, Mittal is hardly the greatest gainer of the past 24 months. That distinction belongs to Anil Ambani, who has increased his fortune from $5.7 billion to $42 billion in just two years through his ownership stake in India's Reliance Communications and Reliance Power. Anil clocks in as the sixth-richest person in the world, just behind his estranged brother, Mukesh Ambani.

The tremendous performance of international stocks has led to a seismic shift in the composition of Forbes' list, as you can see from the table below:

2003

2004

2005

2006

2007

2008

Number of Americans in Top 10

8

8

5

3

3

2

Number of Americans in Top 25

18

13

12

12

8

4

As recently as two years ago, 12 of the 25 richest people in the world were Americans. Now only four are.

Where have all the returns gone?
The changing composition of Forbes' list only underscores what stock market experts like Wharton professor Jeremy Siegel have been claiming for years: You need to be investing overseas.

Siegel advocates that investors allocate 40% of their portfolios to international stocks. That 40% figure is probably too aggressive for the average investor, but it's not an unreasonable target. It's certainly better than the 5% of their 401(k)s that U.S. investors currently commit to foreign fare.

Just look at the returns that domestic-oriented investors (including Gates and Buffett) have been passing up over the last three years:

Country

3-Year Returns*

S&P 500 (U.S.)

12%

Dax (Germany)

46%

Hang Seng (Hong Kong)

53%

Ibovespa (Brazil)

114%

IPC (Mexico)

122%

BSE Sensex (India)

123%

RTS Index (Russia)

187%

SSE Composite (China)

210%

*Through March 20, 2008.

Before you extrapolate these superior returns years out into the future, let me say that they simply aren't sustainable over the long term. China cannot continue to triple every three years, and on the flip side, the U.S. economy should recover from its recent slump and pick up its pace.

Even with those caveats, though, the key takeaway remains: International stocks stand to benefit from blistering economic growth the likes of which the U.S. will never see again.

Be better than Buffett
I doubt that these international upstarts are better businessmen than Gates. And they're almost certainly not better investors than Buffett. The only reason they've been gaining ground on America's richest men is because they have a greater percentage of their portfolio allocated to international investments. But unless Gates and Buffett decide to branch out and go global, there will probably be further changes atop Forbes' list in the coming years.

Those of us who invest in denominations of thousands rather than millions may never pass Gates or Buffett on Forbes' list, but that doesn't mean we can't capture better returns than the two billionaires. Better still, by increasing our allocation in international stocks, we can lessen our exposure to some of the risks endemic to U.S. investments (for instance, a housing industry meltdown, or a devalued dollar).

At Motley Fool Global Gains, Bill Mann and his team of analysts have assembled a wide array of international stocks, from slow-and-steady cash cows to companies poised to benefit from emerging megatrends. These companies have only two things in common: They're not based in the United States, and Bill expects them to significantly outperform their American counterparts.

Take a free 30-day trial of Global Gains to see a detailed recommendation of each of our stocks, as well as Bill and the team's best bets for new money now. Simply click here for more information.

Rich Greifner is still waiting for Forbes to release a list of the world's thousandaires. Rich does not own shares in any company mentioned in this article. Microsoft and Dell are Inside Value recommendations. Dell is also a Stock Advisor selection. The Fool has a disclosure policy.


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