Tuesday, June 27, 2006

Gates may be falling to Buffett wealth level

Bill Gates’ decision to stand down from his day job at Microsoft is only half the story.
The deepening crisis in the company’s stock is also threatening to cost the tycoon his crown as the world’s richest man.
In fact, by my math, it may already have done so.
He is now barely level with Wall Street’s favorite curmudgeon, Warren Buffett.
It is less than 4 months since Forbes Magazine once again named Gates, 50, as the world’s richest in its authoritative annual rankings. They put his fortune at $50.0 billion.
Just over half of that was in Microsoft stock. Gates has been quietly, but steadily, reducing his holdings in the company for years.
However, soon after Forbes’ rankings hit the newsstands, Microsoft shares hit the skids as the company disappointed Wall Street and warned of leaner times to come.
The stock, $27 in early March, has fallen to just $22.55. It is flirting with levels not seen since 1998.
The latest plunge has wiped about $4.5 billion off Gates’ fortune. Exact numbers are hard to come by, because we don’t know what’s happened to the other half of his investments.
But unless they have moved dramatically, it would suggest he is down to about $45.5 billion.
Forbes had him at just $42 billion back in early March but shares in his enormous investment empire, Berkshire Hathaway, have risen sharply since.
With ‘A’ class shares in Berkshire now $92,600 each, Buffett’s stake is valued at $46 billion.
The two men, who are friends and occasional bridge partners, share certain characteristics.
Their fortunes are self-made. Neither leads a particularly lavish lifestyle. Buffett is especially frugal. They have invested small stakes in each other’s companies. Gates serves on Buffett’s board.
But while Gates made his legendary money from the 1990s technology mania, Buffett famously refused to invest in it.
Even at the height of the dotcom bubble, when Gates was theoretically worth a staggering $100 billion, Buffett warned that the IT industry was far too volatile to invest in and steered clear.
It was exactly the kind of prescience and wisdom that has allowed him to create such a vast fortune simply through investing.
Buffett’s company, Berkshire Hathaway, is effectively a closed-end investment fund and Buffett himself probably the most successful fund manager who ever lived.
Anyone who invested $10,000 in his original partnership and stuck with him is now worth more than $200 million.
I’m not so lucky, although in full disclosure I have been an investor in Berkshire Hathaway for just over a year.
As for Microsoft stock , even at these humbled levels opinion is divided. Hub fund manager Lee Forker, president of New England Research & Management, thinks the price is going to get worse before it gets any better. “I’m scared to death by the chart,” he said yesterday. “It looks like there is no end in sight.”
But Rich Cervone, co-manager of the Putnam Investors’ Fund, thinks the stock is already too cheap and is buying.
He likes the company’s core software business and huge cashflow. However he admits he is taking a long-term view, and that the short term could well be rocky.

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