Billionaire-Makers

Since billionaires must know something about how to make money, let’s see how many of them have made their bundles.

Though some folks such as George Soros, James Simons and Steven Cohen have traded their way to massive wealth, they’re not in the majority. Most billionaires, such as Warren Buffett, Carlos Slim Helu, Bill Gates and Larry Ellison, have gotten there through ownership of a single great company.

Often, their success had much to do with having a great business idea, guts, timing and a little bit of luck. Michael Dell, for example, founded the predecessor to Dell in his college dorm in 1984. Dell was one of the first companies to successfully sell computers directly to consumers, allowing Michael Dell to cut out the middleman — and undercut his competitors’ prices.

Fortunately, we can make lots of money without our own billion-dollar business idea — by owning shares of a great company for a long time. Michael Dell didn’t get rich by trading in and out of Dell shares; he did it by owning a big piece of the company as it became a leader in PC sales. Likewise, it wasn’t savvy options trading that helped Bill Gates score his enormous net worth — it was owning a chunk of Microsoft and benefiting from its long-term growth.

But you don’t want to hold on to just any stock for a long time. So what are the shared characteristics of the companies many billionaires have owned? These:

• A sustainable competitive advantage that kept them at the forefront of their industries.

• A shareholder-friendly management team that (preferably) owned a big piece of the company.

• A solid balance sheet.

• A business that pumped out cash.

They were also small, in their early days. So look for smaller companies with the billionaire- making traits. Learn more at www.fool.com/investing/small-cap/ index.aspx and www.investopedia.com/ articles/stocks/08/small-cap.asp. (Microsoft and Dell are Motley Fool Inside Value recommendations.) 