How Bill Gates Invests His Money

I know as much about software engineering as I do neurophysiology, i.e., nada. I'm not qualified to pick apart Microsoft (Nasdaq: MSFT  ) co-founder Bill Gates' brain. Nonetheless, the man who can be credited with some of the most significant inventions of our time is known for much more than his software contributions. He is now an influential philanthropist, plays a mean hand of bridge, and, most notably, spent 13 years atop Forbes magazine’s billionaires list as the world's richest man.

A huge amount of Gates' wealth is tied up in Microsoft stock -- more than 813 million shares as of May 14 -- but that isn't the only place he's stashing money. Gates has his own private investment vehicle, Cascade Investment LLC, which makes diversified investments outside of his massive Microsoft hoard.

What lies inside Gates' investment house? Unfortunately, it's a private organization, so we ordinary Joes don't have access to all the inner workings But we're not completely in the dark. The most recent Securities and Exchange Commission 13-F form gives us a glimpse into some of Cascade's public holdings.

Here are a few notable positions, as of Dec. 31, 2007:

Company

Common Shares
Owned by Cascade

One-year Performance

Canadian National Railway (NYSE: CNI  )

33.86 million

6.8%

Otter Tail (Nasdaq: OTTR  )

2.56 million

11.9%

Republic Services (NYSE: RSG  )

27.19 million

12.9%

Six Flags (NYSE: SIX  )

10.21 million

(66.2%)

PNM Resources

7.02 million

(51.7%)

Source: Google Finance.

A Buffett-worthy performance?
Cascade also holds a considerable position in Berkshire Hathaway, where Gates sits on the board of directors under his pal (and current world's-richest-man) Warren Buffett. While it's unclear whether Gates' friendship with Buffett has much of an influence on Cascade's portfolio, some holdings display Buffett-esque characteristics.

Take Republic Services, for example. One of Cascade's largest public holdings, the Florida-based company is in the waste management business -- a subdued industry not likely to catch investors' eyes. The boring, ho-hum trade is just the kind that gets Buffett's attention. And with return on equity north of 20%, consistent and predictable earnings, and healthy cash flow, it's likely that Republic Services would get an initial nod from Buffett.

On top of that, Cascade's investment in railroads actually came before Berkshire figured out they were about to take off. Speaking last year, Berkshire Co-chairman Charlie Munger explained, "Bill Gates figured out [railroads' advantages] years before us -- he invested in a Canadian railroad and made 800%. Maybe Gates should manage Berkshire’s money."

Don't take Munger too seriously. It's unlikely the Sage of Software would become the next Oracle of Omaha.

Powering more than your desktop
A bit more digging shows Cascade has a position (relatively small by Gates' standards) in Pacific Ethanol (Nasdaq: PEIX  ) . What was behind Gates' ethanol bet? Your guess is as good as mine, but he was unlikely to receive the blessings of Buffet and Munger on that one.

Never one to mince words, in 2007 Munger stated, "I think running automobiles on corn is one of the dumbest ideas." Initially it looked like a hot solution to an unsustainable dependence on fossil fuel, but ethanol production's unintended side effects, including surging food prices, hasve caused quite a stir lately.

The one-hit wonder?
It's important to note, dear reader, that it's not clear whether Gates plays an active role in managing Cascade's investors in any manner. His single greatest investment, Microsoft, brought him unfathomable wealth, but his investment expertise may end there, for all we know. Cascade's operations are monitored by career investment managers.  

Anything tied to the Gates name enjoys the luxury of being firmly ensconced in the well-connected, in-the-know, investment world. At last, investment insights from a decabillionaire, and it isn't Warren Buffett.

For related Foolishness:

Fool contributor Morgan Housel owns shares in Berkshire Hathaway, but in none of the other companies mentioned in this article. Don't tell anyone, but the Fool's disclosure policy is loyal to Mac.

Microsoft and Berkshire are Motley Fool Inside Value recommendations; Canadian National Railway and Berkshire are Stock Advisor picks; Otter Tail is a Hidden Gems selection; and Republic Services is an Income Investor pick. The Fool owns stock in Berkshire Hathaway. If that weren't enough, you can try any of our Foolish newsletters today, free for 30 days.


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