When I look at Forbes' list of the world's billionaires -- a.k.a. the list of people who make more in a day than I have in my entire lifetime -- it becomes quite clear that there are two ways to make stupidly large amounts of money. Either build a company that grows to be worth billions, or become a successful investor.
Frankly, creating a billion-dollar business sounds hard. So let's ignore Bill Gates, and look at Nos. 2 and 3 on the list. There, you find Warren Buffett and Carlos Slim.
A tale of two billionaires
Now, most people know Buffett. He's a value investor who walks right by the overhyped, exciting investments, and heads straight for the boring, ugly, beaten-down stocks in the bargain bin. He buys newspapers. And paint and carpet companies. And when he's feeling particularly frisky, he'll buy an underwear manufacturer.
Yet this fellow made himself billions. Go figure.
The third person on the list, Mexico's Carlos Slim, is far less familiar. He's noteworthy not just for his $49 billion fortune, but also as the person who gained the most wealth in the last year ($19 billion). To make that money, surely Slim would have to be in some really exciting businesses?
Umm, no. Slim has been in cigarettes, real estate, soda bottling, auto parts, and insurance. He's made a bunch in telecom. Not satisfied with owning Telefonos de Mexico (NYSE: TMX ) , Mexico's biggest telephone provider, Slim branched into other countries. In fact, by selling his 13% stake, Slim helped seal Verizon's (NYSE: VZ ) acquisition of MCI.
How they did it
So how the heck did these guys make so much money in such boring industries? By following two simple rules:
- Buy companies when they're cheap.
- Focus on excellent businesses.
Buffett made a fortune when he bought loads of American Express (NYSE: AXP ) at incredibly low prices in the wake of the 1964 salad oil scandal. He recognized that the company still had a solid brand and was dirt cheap.
Slim's first huge opportunity came during Mexico's 1982 economic crisis. When international investors fled in panic, Slim noted that "the low value of many enterprises was even more irrational than the pessimism in the business community." He bought, and reaped immense profits.
At this point, Bill Gates is looking kind of lonely, so let's go back to him.
Everyone knows that Gates made his billions by founding Microsoft (Nasdaq: MSFT ) . But if you look at his personal stock portfolio, you'll find that he owns Canadian National Railway (NYSE: CNI ) , Republic Services (NYSE: RSG ) , and Otter Tail (Nasdaq: OTTR ) . The first company is, surprisingly, a railway. The latter two are a garbage collector and an electric utility that also manufactures plastic pipes. At this point, it should be obvious. Bill Gates is into boring value stocks, too.
The Foolish bottom line
Now, there's a reason that the top three billionaires on this list are value investors. It's because they know that value investing simply outperforms all other types of investing.
That's why it pays to always be on the lookout for value stocks, particularly when the market gets volatile. Buffett and Slim made some of their most successful investments by buying when everyone was panicking. You can too.
If you're looking for assistance identifying the best opportunities, our Inside Value newsletter can help. Every month, we recommend the two best value stocks we can find. You can see all our recommendations -- including this month's top picks -- with a free pass here.
Fool contributor Richard Gibbons would make the list if they would just expand it by another 500 million people. He does not have a position in any of the stocks discussed in this article. Microsoft is an Inside Value recommendation. Otter Tail is a Hidden Gems pick. The Motley Fool has a disclosure policy.
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