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If You Can’t Beat Them Join Them

by My Journey to Millions

If you believe that the rich get richer, why not just invest in them instead of against them? I am not talking about your next door neighbor with a couple German cars and a 45 foot boat…I am talking about investing with Billionaires! How? by following the Billionaire Index.  Created by Dr. Joel Shulman, C.F.A., of Babson College the Forbes Billionaire Index,

is comprised of shares of 571 publicly traded companies that are owned, created or managed by individuals on the Forbes billionaires list.

I think I like the idea so much because Dr. Shulman focuses on those businesses where the driving force behind the company is the same person who brought that company from a small business to the behemoth that it is today.  That type of spirit is often felt throughout the entire company,

The research suggests that many individuals on Forbes’ billionaires list are entrepreneurial in nature. These billionaires helm companies with common entrepreneurial attributes, for example: organic revenue growth, clean and positive corporate reputation, transparent governance, lean costs and modest debt. Additionally, the entrepreneurial billionaires themselves hold an above-average ownership stake in the organization

I am sure things change in that entrepreneur’s life but I’d like to believe that some of that drive and passion especially for his or her mistress (e.g. the business) is still there.

I couldn’t find an ETF or Mutual Fund that attempted to mimic the Index, but if there were one (or if someone could point one out) I would think about investing it, or at the very least, see what they pick up and drop (and why).

How has the Forbes Billionaire Index Performed?

The whole topic is irrelevant if the index isn’t successful (or maybe its lack of success would be interesting too).  According to Forbes,

From April 1996 through March 2011, the Forbes U.S. Billionaires Index increased about 400%, compared to increases of 100 % to 150% for the Russell 3000 (mid-cap), Russell 2000 (small-cap), S&P 500 (large-cap) and MSCI World Index, the profs calculate. Over the same 15 years, the basket of billionaires stocks provided an annualized compounded rate of return of 11.03%, while the other benchmark indexes returned from 4.92% to 6.41%. The  Forbes U.S. Billionaires Index was more volatile and underperformed the other benchmarks in declining markets, producing what the Shulman and Noyes describe as a “wild ride” for investors.

I don’t think that is particularly shocking to find that this type of index would be more volatile considering they are taking concentrated positions in specific companies.

Would you Invest in the Billionaire Index?

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Em 03/30/2012 - 12:30 pm

I can’t wait for the day where I can afford to risk putting my money in the stock market! Until then, I’ll just continue to stash cash away in a normal savings account, educate myself more on investment avenues, and continue the fast track to mortgage payoff since we’ll be renting the house out as an investment soonish.

Evan 04/03/2012 - 12:48 pm

I understand having a good cash base, I am a big proponent and haven’t really landed on a number where too much cash is…too much lol

But, why not diversify what you are contributing to? If you are sending a bunch to accelerate a mortgage why not dial it back a bit and get into the market?

Financial Samurai 03/30/2012 - 6:35 pm

It does make sense to invest along side the super wealthy. HOwever, they are more for capital perservation and annuities imo. 3% return on $1 billion = $30 million. That’s good enough for them, but not for us!

Evan 04/03/2012 - 12:50 pm

What you’d be investing in is their baby – the company they grew. But I hear you that they can be a little more safe with their investments as they don’t need the growth.

Funny about Money 03/31/2012 - 8:26 am

Hm. Maybe, maybe not. Depends on the company, on the present economic conditions for that company’s industry, and the like. Just because an individual has made a zillion bucks doesn’t mean he can continue to do it, that he’s ethical, or that he’s mentally stable. Consider, for example, the history of U-Haul.

Evan 04/03/2012 - 12:59 pm

What about the history? https://en.wikipedia.org/wiki/U-Haul

Regardless, you are right that there is no guarantees but there are no guarantees of any index or fund increasing value. This is just one alternative. I am not sure if I would invest it would depend on the rules chosen by the fund manager.

Andrea 03/31/2012 - 9:36 am

If I had the cash to spend (and lose) I might!

Evan 04/03/2012 - 1:01 pm

No! Who wants to lose anything. Do you think it would be an okay investment idea?

Christopher 04/03/2012 - 8:40 am

I agree with Sam the super wealthy are not into growing their money as much as a middle class family. They are trying to maintain their wealth. The middle class are trying to “beat” the market returns.

Evan 04/03/2012 - 1:02 pm

but you are investing in that HNW Individual’s baby…their mistress…their passion

JT 04/03/2012 - 9:05 am

I’m going to go out on a limb and say that this index won’t outperform considerably in the long haul.

My thinking is that the publicly-traded firms the billionaires are involved in are in the energy, real estate, technology, and mining spaces.

If oil, gold, and silver tank, the fund will switch out of these investments as the billionaires fall off the list. Gold goes to $800 for example, and a bunch of billionaire mining operators go to millionaire status. Their firms drop considerably in value, and the fund would have to sell the holdings at the worst possible time.

Evan 04/03/2012 - 1:21 pm

AMAZING POINT, JT. It would also be buying at terrible times as there has already been a massive run on the company.

That is a REALLY interesting point, it then goes to whether they can buy before *another* run up of the stock…

For example the article highlights having Apple since 1996 we all know how that worked out, or alternatively, MSFT for 10 years (although the dividends were/are nice)

JT 04/05/2012 - 7:34 am

Ha, yeah – AAPL, MSFT, energy, and mining stocks have all done amazing since 1996. Needs more data!

John 04/03/2012 - 12:10 pm

This is a very interesting perspective! I think it’s true that once people obtain a certain level of wealth, they have a higher potential to make money – of course, using their money to make more money.

So yes, I agree, we should invest like they do as long as their investing is proper and risk is low . . . poor people shouldn’t be engaging in volatile investments.

Evan 04/03/2012 - 1:25 pm

But, John, what about investing in just their main passion…the main business that increased their net worth to ridiculous levels? The index is involved in those companies not the people themselves.


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