You've worked hard for your money. It's time to let your money start working hard for you. The two richest people in the world, Bill Gates and Warren Buffett, didn't get that way through inheritance or through their salaries. They got rich because they own large chunks of very successful companies. Granted, Warren and Bill largely founded those companies, but it's their ownership, not their direct labor, that gave them their fortunes.
The employees of any company work for the owners. If employees aren't making more money for the owners than it costs to keep them around, those employees won't find themselves employed for very long. The employees make a living, but the owners are the ones who get rich.
Hire Bill Gates and Warren Buffett
The beautiful thing about the American economy is that anyone can be an owner of a business. All it takes is some cash, a bit of patience, and an eye for finding opportunities. They say that the best revenge is living well, but let me tell you, they're wrong. The best revenge is knowing that the two richest people in the world work for you, and as they get richer, you get rewarded, too.
Bill Gates runs Microsoft (NASDAQ:MSFT) and Warren Buffett runs Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb). Both are publicly traded, and both have produced scores of multimillionaires through the power of ownership. If you'd invested $1,000 in Microsoft in March 1986, you'd have more than $300,000 today. If you'd invested $1,000 in Berkshire in October 1976, you'd have more than $1 million today. Astonishing.
Best of all, you wouldn't have had to work for that money (beyond putting in the buy order). All it took was letting Bill and Warren do the heavy lifting.
Selling land in aisle three
For a more recent example, consider discount retailer Kmart. Price competition from Wal-Mart (NYSE:WMT) knocked this purveyor of the Blue Light Special into Chapter 11 bankruptcy protection. When Kmart finally emerged from bankruptcy, it was still viewed as a marginal retailer at best, unable to compete with the more efficient and better capitalized behemoth that originally knocked it into bankruptcy court.
Despite its other troubles, Kmart was an owner of a veritable gold mine: land. Kmart owned a significant amount of real estate, much of it in prime locations. That land allowed Eddie Lampert, the celebrated investor who steered Kmart out of bankruptcy, to embark on a strategy of selling well-located but underperforming stores. It was a brilliant move, and it helped the company streamline and receive huge sums of money to invest elsewhere.
The effect of striking gold
Lampert's strategy helped buoy Kmart's stock to the point that it was recently used as a currency to acquire Sears, another older retailer with significant real estate and shaky financials over the past few years. The combined company is known as Sears Holdings (NASDAQ:SHLD), and Lampert serves as chairman.
Kmart's transformation took just about two years, in which time its shares skyrocketed from below $15 to about $140 a share. A lot of work by Lampert and his team went into making that happen. Investors who bought Kmart stock after it emerged from bankruptcy -- the people who decided to, in effect, hire Lampert -- merely sat back, watched the company's recovery unfold, and profited from the outcome.
Kmart's new owners succeeded after the firm emerged from bankruptcy because they owned land worth significantly more than its value on the company's books. Companies emerging from bankruptcy often have stronger financial positions than they had going in. Shedding overwhelming debt can't hurt. However, the stigma of their past tends to depress their stock's price.
My friend and colleague Philip Durell saw such an opportunity when he recommended long-distance giant MCI (NASDAQ:MCIP) for his Motley Fool Inside Value newsletter. Much like Kmart, MCI had gone through a tough bankruptcy, and its new, post-bankruptcy shares were still haunted by the demons of the company's scandalous past. However, the company's balance sheet had been cleaned up and its operating cash flow surged, having been freed of burdensome interest payments. Importantly, MCI also had a reform-minded CEO, Michael Capellas, running the show and unlocking hidden value.
Given its solid cash flows and a stock price beleaguered by the firm's past problems, MCI was an almost ideal value investment. I say almost because just after Philip selected MCI for Inside Value, the company got even better for its owners when MCI authorized a 40-cent quarterly dividend, a whopping 12% annual yield based on its price at the time.
Less than a year after Philip's recommendation, MCI agreed to be acquired by Verizon (NYSE:VZ) at a price that's essentially double where the stock stood when Philip recommended it. That's an illustration of what can happen if you pick the right stock and the right management team.
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Fool contributor and Inside Value team member Chuck Saletta owns shares of Microsoft. The Motley Fool has a disclosure policy.
