I know the secret to becoming a billionaire investor.
It isn't to buy stocks at the bottom, though that helps. It isn't to avoid massive value traps, though avoiding losses is important. And it isn't buying the best companies available, though that, too, is an excellent strategy.
So what is the surest path to extraordinary wealth? Entrepreneurship.
Oh, to be an owner
Of the top 10 members of Forbes' latest list of the nation's 400 richest, four started firms that earned billions: Bill Gates' Microsoft is first, Warren Buffett's Berkshire Hathaway is second, and Larry Ellison's Oracle third.
Four heirs to Sam Walton's Wal-Mart fortune come next, followed by New York Mayor Michael Bloomberg, founder of his namesake financial services company, and Charles and David Koch, who inherited their father's private oil refining business and transformed it into America's largest private company, Forbes reports.
And there are many more business owners among the remaining 390. Apollo Group's (Nasdaq: APOL ) John Sperling is 321st with $1.5 billion. Just ahead of him is Simon Property Group (NYSE: SPG ) co-founder Herbert Simon, worth $1.6 billion. Boston Properties (NYSE: BXP ) Chairman Mort Zuckerman, whose charitable foundation lost $30 million investing with disgraced financier Bernard Madoff, ranks 147th with a $2.8 billion fortune. And Level 3 Communications (Nasdaq: LVLT ) chairman Walter Scott Jr. is 281st with $1.7 billion.
Invest with owners
Feeling envious? I don't blame you. Wouldn't it be great if we were all billionaires, unencumbered by the need for money? Of course it would be. But that's not how the world works.
Still, I find it reassuring that, as rich as Gates is, the bulk of his wealth comes from staying invested in the company that brought him to the billionaires' ball. Why? Because anyone with a brokerage account could have enjoyed similar percentage gains.
In fact, many did. So great is the story of Microsoft's ability to generate wealth that it has a name -- the uprising of the so-called "Microsoft millionaires." At least hundreds of them must still exist. Think about it: A $1,000 investment in Mr. Softy at the dawn of 1990, four years after his debut on the Nasdaq, would be worth more than $36,000 today.
Searching for the next Microsoft
That's why Motley Fool Hidden Gems co-advisors Seth Jayson and Andy Cross focus on the stocks of up-and-coming firms in which the managers own a stake. Some of the service's best ever picks have featured meaningful insider ownership.
Consider Stewart Information Services (NYSE: STC ) , a title insurer. We recommended the stock to subscribers a year ago and it's been a rare outperformer in a difficult environment.
Title insurance isn't exactly in favor at the moment because 2008 was an awful year for residential real estate. Stewart, accordingly, saw widening losses during the third quarter. But even if the market lags in 2009, it won't stay down forever. When it recovers, builders like Pulte Homes (NYSE: PHM ) and Centex (NYSE: CTX ) will profit alongside Stewart's investors. Insiders, especially -- they still own more than 6% of the business.
So don't envy the billionaire owners. Invest alongside them. They're the ones who really have the best chance to create the next Microsoft, and make you millions in the process. Want help identifying promising prospects? Take a 30-day free trial to Motley Fool Hidden Gems. There's no obligation to subscribe.
This article was originally published on Oct. 12, 2006. It has been updated.
Fool contributor Tim Beyers had stock positions in Berkshire Hathaway and Oracle at the time of publication. Berkshire is a recommendation of both the Stock Advisor and Inside Value services. Microsoft and Wal-Mart are active picks for Inside Value. Stewart Information Services is a Motley Fool Hidden Gems pick. The Motley Fool owns shares of Berkshire. Its disclosure policy always takes ownership.