What would you invest in if you were the world's fourth-richest person? For Bill Gates, the question isn't hypothetical. The Microsoft co-founder is the world's fourth-richest person, according to the Bloomberg Billionaire Index, with an estimated net worth of $129 billion.
Fortunately for us, the answer to the question above isn't hypothetical, either. Gates just invested $940 million -- almost $1 billion -- in European beer maker Heineken (HEINY 1.25%).
Here's what happened -- and whether Gates is "right" about beer.
Gates' billion-dollar bet
The holdings of the Bill & Melinda Gates Foundation are easy to track -- it's required to disclose holdings quarterly. However, Bill Gates' personal wealth (stock investments are held in a company called Cascade Investment LLC) aren't as well known. Updates usually come only when companies are required to disclose large ownership stakes.
That's what happened recently with Gates' investment in Heineken. As reported by Reuters, Gates now owns about 10.8 million shares of Heineken's parent company Heineken Holdings (which is listed on a stock exchange in Amsterdam), worth about 3.8% of the company. This triggered a disclosure filing in the Netherlands.
Not only do we know who's buying Heineken stock, we also know who's selling. Fomento Economico Mexicano SAB de CV (FMX 0.11%) (FEMSA) is a Mexico-based bottling company that has an investment portfolio. On Feb. 15, FEMSA said it had completed a strategic review that involved selling several investments, including its entire stake in Heineken.
Days later, Heineken announced that it was purchasing some of the shares that FEMSA was selling. But Gates' purchase of 10.8 million shares was unknown until the recent disclosure. The disclosure further revealed that he bought directly from FEMSA at market prices.
Interestingly, Gates' Cascade Investment purchased the same amount of shares (10.8 million) of FEMSA back in 2007.
Keeping things in perspective
While $940 million sounds like a lot of money for most of us, it's a small amount for Gates, at less than 1% of his net worth.
According to information from the Federal Reserve, the average net worth for U.S. families in 2019 was $748,800. Therefore, Gates' investment in Heineken would be like if the average U.S. family invested around $7,000 -- a far less eye-popping number.
Gates is good friends with renowned investor Warren Buffett, and it's tempting to think that his investment in Heineken is based on some wisdom gleaned from Buffett. But we should tap the brakes on that notion. In reality, Gates' wealth in Cascade Investment LLC has been managed for decades by Michael Larson.
Therefore, Gates' investment in Heineken was likely Larson's decision more than his own.
Should investors bet on big beer?
One thing needs to be said up front: Beer consumption appears to have peaked worldwide and is now in a state of decline. For evidence, consider that beer sales volume fell 3% in the U.S. in 2022, according to the Brewers Association. Similarly, third-party research company IRI noted a 4% drop in sales in 2022 for beer, wine, and spirits in all major European markets, as reported by The Spirits Business.
Likewise, Brewers of Europe found that beer consumption fell across Europe from 2014 through 2020.
Revenue for major brewers including Anheuser-Busch InBev, Molson Coors, and even Heineken confirms this reality. As this five-year chart illustrates, growth is lackluster. Boston Beer is a notable exception. The craft brewer has benefited from a shift toward craft beers -- its specialty.
SAM Revenue (TTM) data by YCharts
Stagnating or declining sales in the beer industry doesn't necessarily mean that beer stocks are bad investments today. But when growth is lacking, it becomes even more important for companies to earn strong profits and to be smart with how they allocate excess capital. Therefore, any investment thesis would need to place an emphasis on these things.
Personally, I'm not investing in beer today. As someone with around 30 years until retirement, time is on my side, and I'm far more interested in growth. After all, growth is important. A 2006 study from Boston Consulting Group found that growth accounted for 60% of gains among top-performing stocks over 10-year periods.
In Gates' case, or more specifically Larson's, bigger concerns are capital preservation and income, not so much growth. After all, Gates is already richer than all but three people in the world.
When viewed from this perspective, investing in Heineken can make perfect sense. Beer sales are declining, but beer isn't going away entirely. And Heineken is one of the biggest players in the world and pays a dividend yielding a healthy 1.8%.
Therefore, it seems that there's a low chance that investors would lose money here, which could make it an appropriate investment, depending on one's personal financial situation.
