You Don't Have to Invent Things or Industries to Become the Richest Man in the WorldTHE INDEPENDENT: The bad news for Bill Gates is that, after 13 years at the top, he has just lost his ranking as the richest man in the world. The good news is that he has been overtaken by his bridge partner. That man is Warren Buffett, a friend of the Microsoft boss since 1991, when they began to play bridge together – and also to discuss business a little.
In a way, their friendship is an obvious one. As Buffett told the Wall Street Journal eight years ago: "It's hard to have friends when everybody around you wants money. Bill hasn't sold me a computer and I haven't sold him candy. Neither one of us wants anything from the other."
Bill did get something from Warren, however. In 2006, Buffett, then 76, announced that he would be giving almost his entire fortune – which now stands at $62bn (£30.8bn) – to the medical foundation set up by Bill Gates and his wife, Melinda. It is a bequest of almost unimaginable scale, more mindboggling still when added to what was already the world's largest charitable foundation.
The bracketing of Buffett with Gates now seems complete. Yet as businessmen they are very different – and Buffett is much the more unusual type of multi-billionaire. Bill Gates, although in his own way unique, is more typical of the sort of businessman who makes (rather than inherits) a gargantuan fortune.
Such people tend either to develop some entirely new industrial process – or, at the very least, a better form of mousetrap. If they can add to their technological creativity the nerve and courage to retain financial control of their industrial process, then the money just cascades into their pockets faster than they can count it.
For Gates, the process was the mass use of digital language. For John Rockefeller, it was the vertically integrated oil industry, from well-head to end-user. For Henry Ford, it was the mass production of motor cars. Yet Warren Buffett has invented nothing, not even a slightly better mousetrap. All he does is invest in other people's businesses – but with a skill unmatched in the long and turbulent history of capitalism.
Buffett has expressed this more bluntly than anyone else could (or would), saying: "I was born at the right time and place, where the ability to allocate capital really counts. I'm adapted to this society. I won the ovarian lottery. I got the ball that said 'capital allocator--United States'."
This is characteristically modest of the unassuming Mr Buffett. The allocation of capital is an immensely competitive business, yet he has stayed at the top of the investment tree for more than 40 years. Others may flame out but old Warren keeps steaming on, beating the Dow Jones average for year after year... after year.
The reason for the astounding durability of Buffett's success at investment is also something which distinguishes him from almost all other people who are thought of as hotshot money managers. Warren Buffett is almost pathologically risk-averse. As he puts it: "I don't look to jump over 7ft bars. I look around for 1ft bars that I can step over."
Typically, he will spend months – or longer – scrutinising the balance sheets of mature and unfashionable companies. When he has finally decided that the stock market has greatly undervalued them, he moves in – with cash and on a vast scale.
Thus it is that his holding company, Berkshire Hathaway, has significant percentages of such emblems of middle-of-the-road America as Coca-Cola, Gillette, Procter & Gamble, American Express, Kraft and The Washington Post. You will look in vain through the immense Buffett portfolio for any hi-tech stocks – although for sentimental reasons he has retained 100 shares in Microsoft.
Towards the end of the last century, Buffett was widely ridiculed for shunning the dotcom frenzy… >>> By Dominic Lawson
Mark Alexander (Paperback)
Mark Alexander (Hardback)
