



How Billionaires Get Rich

The Forbes list of the world's richest people came out at the beginning of March. The list makes two things immediately obvious.

First, money begets money. If the very last person on this list, a Chinese guy named Zong Qinghou at No. 1,062, put his entire fortune in U.S. bonds, he'd make more in a few weeks than I've accumulated in my entire life. And you know the guy is getting better returns than bonds offer.

Second -- and more useful for those of us who didn't inherit wealth -- for all the excitement that high tech generates, it is nothing but hype to investors.

Buffett was right
Warren Buffett, who made the top of the list this year, despite giving away about $3 billion to charity over the past few years, is well known for his aversion to technology businesses.

If you look at the top 100 billionaires, very few of them accumulated their great wealth through high tech. Basically, you have six men: Bill Gates, Paul Allen, and Steve Ballmer at Microsoft (Nasdaq: MSFT  ) ; Larry Ellison at Oracle (Nasdaq: ORCL  ) ; and Sergey Brin and Larry Page at Google (Nasdaq: GOOG  ) . You could argue that Michael Dell, the founder of Dell (Nasdaq: DELL  ) should also count, but Dell's core business is more about manufacturing and retailing than about developing high tech.

So, three (or four) companies account for all the high tech billionaires in the top 100. The rest accumulated their wealth in businesses with far less sex appeal.

Profit from boredom
As you'd expect with the high price of commodities these days, there are a number of people on the list with stakes in commodity businesses. It's unclear whether these billionaires have long-term staying power.

Outside of commodities, the common theme is "boring" businesses. Carlos Slim, at No. 2, made his fortune in soda bottling, auto parts, and cigarettes -- he used to be on the board of Altria (NYSE: MO  ) .

Three of the Mars clan claim positions 46 to 48. They accumulated their wealth in candy and pet food. Casinos helped Sheldon Adelson achieve the No. 12 spot and Kirk Kerkorian No. 41. Kerkorian bought and sold MGM three times and is currently the majority owner of MGM Mirage (NYSE: MGM  ) . Nike's (NYSE: NKE  ) shoes and athletic gear were enough to propel Philip Knight to No. 73.

While it may seem counterintuitive that "boring" businesses made these people the richest in the world, it actually makes sense. To make extreme amounts of money, you have to sell a lot of stuff. People buy many more basic goods like food and clothing than they do software and gadgets. There's simply more money to be made.

A country for old men
What's more, it's difficult to accumulate truly vast sums in a short time. Most billionaires made their money through businesses that have huge long-term competitive advantages. They bought or started companies decades ago, took over a niche in the market, and grew the businesses.

Nike first attacked the athletic shoe market, growing to 50% market share in the United States in 1980, and then expanded into other athletic apparel. Mars started selling candies in 1911 and jumped into adjacent niches in the decades to follow.

It's much harder to achieve this sort of long-term growth with a high-tech company. Competitive advantages in technology tend to be fleeting. Microsoft, Oracle, and Google have carved out defensible niches, but very few other high-tech businesses have achieved long-term success.

Technology changes rapidly and new competitors enter the market each year, so tech companies need to update their products constantly or risk becoming obsolete. Mars, on the other hand, has sold Snickers bars since 1930 and M&Ms since 1940.

Stock market investors can learn a thing or two from these guys. They've demonstrated that real wealth is accumulated by owning -- for a long time -- excellent businesses with sustainable competitive advantages.

The Foolish end
It's a particularly appropriate time to learn that lesson. Often, the sorts of businesses that can grow capital for decades are expensive, simply because they are so attractive. But recent volatility has driven down some excellent stocks to extremely compelling levels.

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Fool contributor Richard Gibbons' only real hope of becoming a billionaire is through hyperinflation or amazing medical advancements. He does not have a position in any of the stocks discussed in this article. Dell and Microsoft are Inside Value recommendations. Dell is also a Stock Advisor selection. The Fool disclosure policy has tremulous eyes and quivering lips.


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