Today, Forbes Magazine will release its 262-page “World’s Billionaires” issue. The yearly release is a red-letter day for America’s business press and is accompanied by extensive coverage of how these global tycoons made – and are likely to spend – their considerable wealth.
For Joel Shulman, a money manager and Associate Professor of Entrepreneurship at Babson College, the list got him thinking about something different – namely, how it could help regular investors cash in on a small slice of these billionaires’ success. “This sort of thing gets lost every year,” Shulman says. “It’s all about the billionaires and how they’re making money and not enough about how you can too.”
Aside from doing academic research, Shulman runs a mutual fund that invests in companies he identifies as having an “entrepreneurial sprit.” Shulman’s fund bets that successful entrepreneurs will continue to succeed, that they have that proven mix of instinct and skill that will help them persevere through the lean times and thrive during the boom years. Predictably, there is an overlap between the firms that Shulman invests in and the billionaires tracked by Forbes.
The strategy requires few fancy tricks and no active management beyond updating your fund each year as Forbes issues a new list, and the results speak for themselves. If you had started this strategy in 1986 by investing $1,000 in the “billionaires index,” you would have ended up with nearly $5,000 in 2011. If you had instead invested in other benchmarks like the Russell 2000, Russell 3000 and the S&P 500, you would have finished with $2,500 or less.
There are some caveats. The “billionaires index” is more volatile than the benchmarks Shulman’s study compared it to. That means there’s a greater chance you’ll make a lot of money in a given year, but that’ll you also lose a lot of money too. But as any stock market veteran knows, volatility isn’t necessarily a bad thing — as long as you are appropriately compensated for that risk, and Shulman’s data show that the “billionaires index” does a better job of that than the benchmarks it was compared to.
So what makes investing in billionaires companies so special? Shulman speculates that it’s partially due to the “entrepreneurial spirit’ that drives so many billionaires past plain-old-Mitt-Romney-wealthy into the upper echelons of the world’s most prosperous. Successful entrepreneurs “have high ownership stake, they keep their teams tight, and know how to leverage their contacts,” Shulman says. He also speculates that there’s something to the old adage, “the rich get richer” — some intrisic advantages to being wealthy when it comes to making money. Wealthy people have better contacts to leverage, better access to information, and cheaper access to capital, to name just a few.