To The Moon

It's a commonly heard phrase that "the rich get richer," and this has often been demonstrated by the increase in the number of billionaires and their total wealth over the years.

This got me thinking: what if we could invest alongside the world's richest individuals by investing in the companies where much of their wealth is concentrated?

To see if this investment strategy holds merit, I decided to conduct a test. The approach was to create a portfolio of stocks based on the top 10 richest individuals, with each stock given equal weighting. We would then rebalance the portfolio whenever the ranking of the wealthiest individuals changed.

So, what kind of returns could one expect from this approach?

2018

To put this investment strategy to the test, I created a simulation by investing $100,000 into a portfolio of stocks in 2018. The stocks selected were based on the top 10 richest individuals, and the initial set included:

1. Amazon

2. Microsoft

3. Berkshire Hathaway

4. LVMH

5. Meta

6. Inditex

7. Grupo Carso

8. America Movil

9. Oracle

The list does not make it to ten because Koch Industries is privately owned and thus cannot be invested.

2019

After investing in the initial set of stocks, the portfolio's value grew by 4% over the following year. However, it was time to rebalance the portfolio when Larry Page entered the top 10 richest individuals list. To make room for Alphabet, some positions were trimmed.

The new portfolio holdings looked like this:

1. Amazon

2. Microsoft

3. Berkshire Hathaway

4. LVMH

5. Grupo Carso

6. America Movil

7. Inditex

8. Oracle

9. Meta

10. Alphabet

2020

Despite the COVID-19 pandemic's looming impact on the market, the portfolio's performance remained flat.

However, further changes were needed when Carlos Slim and Larry Page were no longer in the top 10 richest individuals. To make adjustments, we sold the stocks associated with them, including Grupo Carso, America Movil, and Alphabet. In their place, we bought shares in Wal-Mart.

The new portfolio holdings were as follows:

1. Amazon

2. Microsoft

3. LVMH

4. Berkshire Hathaway

5. Oracle

6. Inditex

7. Meta

8. Wal-Mart

2021

Thanks to the Federal Reserve's massive liquidity injections during the COVID-19 pandemic, the stock market experienced a significant rally. As a result, the portfolio's value soared by an impressive 51%.

However, it was time to rebalance the portfolio again, as Armancio Ortega and the Wal-Mart family were no longer among the top 10 richest individuals. We sold Inditex and Wal-Mart and replaced them with Tesla, Alphabet, and Reliance Industries.

The new portfolio holdings were:

1. Amazon

2. Tesla

3. LVMH

4. Microsoft

5. Meta

6. Berkshire Hathaway

7. Oracle

8. Alphabet

9. Reliance Industries

2022

Despite the ups and downs of the market, the portfolio managed to maintain its positive trajectory and gained around 20%.

The only change made was selling Meta as a result of Mark Zuckerberg's plummeting wealth due to the company's pivot to the metaverse and dismal results.

The portfolio holdings were as follows:

1. Tesla

2. Amazon

3. LVMH

4. Microsoft

5. Berkshire Hathaway

6. Alphabet

7. Oracle

8. Reliance Industries

2023

Unfortunately, the latest Forbes billionaire list revealed that it was a tough year for billionaires, as they collectively lost $500 billion. The portfolio also suffered a loss of 14%.

We sold Alphabet and used the proceeds to purchase shares in Grupo Carso and America Movil.

The updated portfolio holdings were:

1. LVMH

2. Tesla

3. Amazon

4. Oracle

5. Berkshire Hathaway

6. Microsoft

7. America Movil

8. Grupo Carso

9. Reliance Industries

5 years of performance

Over the past five years, the Forbes Richest strategy has demonstrated impressive performance, generating a compounded annual return of 10%. For example, if one had invested $100,000 in this strategy in 2018, their investment would have grown to $161,205 in the current year.

This is a testament to the adage that "the rich get richer", but it also suggests that investing in companies associated with the wealthiest individuals can be a sound investment strategy.

Now, let's compare the Forbes Richest strategy to the S&P 500. The S&P 500 actually outperformed the Forbes Richest strategy, generating a compounded annual return of 10.4% over the same period.

If one had invested $100,000 in the S&P 500 instead, their investment would have grown to $163,737.

This result may come as an anticlimax, as one may have expected the Forbes Richest strategy to perform better.

While it is important to note that the comparison is based on only five years of data and may not be conclusive, it is worth considering the overlaps between the companies owned by the richest and those included in the S&P 500.

Notably, several key components of the S&P 500, such as Tesla, Amazon, Berkshire Hathaway, and Microsoft, are also owned by the richest. This similarity in holdings may help explain why the performances of the two approaches have been relatively similar over the past five years.

In other words, buying the S&P 500 provides a viable proxy to ride on the coattails of the wealthiest individuals and benefit from their successes, supporting the notion that "the rich get richer." The S&P 500's strong performance does not refute this idea, but rather suggests that by investing in a broad range of companies that include many of the richest individuals and their holdings, one can potentially profit alongside them too.

Get more insights at: https://finbiteinsights.substack.com/