What's in Bill Gates' $47 Billion Stock Portfolio?

Bill Gates, the internet sensation. You might know him as the guy that jumped over a chair or the guy that has no idea what the price of groceries are. Or you might know him as the genius co-founder of Microsoft and the world's seventh richest man, just behind Warren Buffett. Those two really are inseparable.

If you check the microchips in your blood, you might also know that Bill runs one of the world's largest charitable foundations, known as The Bill and Melinda Gates Foundation. And yes, that was a joke; the microchip part, not the charity part. Because this Foundation is absolutely incredible. It works across 130 countries and is working to solve some incredibly difficult global problems.

But to fund their $7.75 billion of annual spending, well, one of the most important parts of the foundation is Bill Gates' monster stock portfolio, which as of the 30th of June 2024, was worth a staggering $47.76 billion. The charity operates on an endowment model, which simply means that the capital at Bill's disposal gets invested across stocks, bonds, and other assets to generate returns. Then the income produced from these investments can be used to fund the grants and their various programs.

It's a smart way to ensure your charity can not only have an impact now, but it will also be able to have an impact long into the future, as opposed to spending all the money now and then having absolutely nothing left to help people out in the future. But you want to hear a crazy statistic? Looking at Bill's U.S. stock portfolio that he files in the 13F each quarter, out of the 23 companies within it, the top five account for a whopping 88% of its weight.

Now, while I'm positive there would be a large amount of T-bills in that portfolio as well, this does kind of show that Bill is still betting quite heavily on five companies to carry the continued success of his foundation. So, what are these five mega bets, and why has he bought each one? Well, that's what we're going to be looking at in this video.

At the top of this video, I did also want to give appropriate recognition to a guy called Michael Larson and his private investment firm called Cascade Investments, because while we talk about this as Bill Gates' portfolio, actually, Michael and his firm have been responsible for managing the foundation's portfolio for now almost 30 years.

But with that said, what are these five massive positions that dominate The Gates stock portfolio? Well, as you can see, here are all the other smaller positions in the portfolio. Coming up to position number five, we have Caterpillar. As you probably know, CAT is an American construction, mining, and engineering equipment manufacturer.

In fact, the company is the world's largest manufacturer of construction equipment, with a 16.3% market share in 2022, over, you guessed it, Komatsu at number two holding 10.7%. So you've probably seen their logos everywhere, right? Road works, excavations, construction sites, mines, demolitions, backyard remodels—wherever there's construction, you'll probably find a Caterpillar machine.

Because they've become the trusted brand in the heavy machinery industry, well, that gives them a competitive advantage. Right now, granted, it's not an Nvidia; it's not going to blow you away with its amazing growth, but it will quietly enjoy the benefits of its competitive position over time. They're the market leader in construction machinery, and the world certainly isn't slowing down on construction projects anytime soon. So Caterpillar stands to benefit.

As you can see, while 2020 was obviously an unexpected freak bad year for construction, over the long term, CAT's revenue is trending up—$66 billion over the past 12 months, of which it keeps around $14 billion in operating income. That's the money that the business's actual operations generate, and that operating income has been growing nicely over the past 10 years, as has their net income.

Turning to the cash flow statement as well, the business generates a solid amount of free cash flow, and if you notice something a little bit higher on this page, one thing to take away from the financials is something particularly relevant to this portfolio: dividends and share repurchases. Without getting into the weeds, both share buybacks and dividends are a way of giving some of the profits of the business back directly to shareholders, as opposed to reinvesting it heavily back into the business.

In the case of dividends, they become a direct income stream for shareholders, which is probably exactly what the foundation is looking for to help fund the roughly $8 billion they spend on their charitable endeavors each year. These days, for example, Caterpillar has a very high dividend growth and safety rating on Seeking Alpha, and as you can see by this chart, the last 10 years have been good for dividend investors.

In fact, considering 2023's total dividend of $5 per share, with the Gates portfolio holding 7.3 million shares, that's roughly $36.8 million of income that the foundation can use to fund their charitable efforts. So overall, Caterpillar is an industry leader with a big brand moat, and as long as there's healthy long-term growth trends in global construction, then it's highly likely that their profits will slowly rise along with that tailwind. Over time, they'll most likely mean more buybacks or juicier dividends, which is great for the portfolio.

Okay, then coming in at number four, we have Canadian National Railway, another company with a massive moat whose future is quite closely tied to economic growth. Canadian National Railway is a freight railway, so they are delivering goods around Canada and the Midwest and south of the United States. As you can see by the map of their tracks, they cover a lot of territory.

If you're interested in freight rail, then Canadian National is one of the biggest in North America, up there with the likes of Union Pacific and Berkshire Hathaway's BNSF. They carry a diverse range of goods too, from petroleum to other chemicals, fertilizers, grains, forest products, cars, and car parts—oil, gas, the list goes on. It's a very much a diversified list of products, and their job is to get those products from A to B.

Railroads are usually very well competitively positioned because of the cost of entry for other competitors. These rail projects take billions of dollars and years upon years to build, so once your railroad has a particular route up and running, that usually secures you a lot of business for a very long time into the future. Again, this company won't amaze you with its explosive growth like in Nvidia, but it's another business where it enjoys the perks of its competitive position and grows as the broader economy does, and as businesses need more stuff moved around.

Again, turning to Seeking Alpha, we can see steady growth in their revenues over time and steady growth in operating income. The business just keeps chugging along, and that's really the story. But again, like Caterpillar, turn to their cash flow statement, and you'll see share repurchases and dividends. In fact, the railway pays out a lot more of their profit in dividends than Caterpillar, with a payout ratio of about 45% versus Caterpillar's 24%.

So again, we look at the number of shares the Gates portfolio holds: 54.8 million, and that's a cool $17.2 million per year based on the 2023 total dividend. Another example of a huge stable company growing well over time with a nice competitive position, and there's the income factor in there as well. You might be noticing the trend here.

With that said, moving onto the third-largest stock in Bill's portfolio, we have Waste Management. Waste Management is one of those companies that typically bores analysts, right? Who the hell wants to own a garbage collection and management company? But again, this is another company that enjoys a very stable business and a very comfortable competitive position.

So what is Waste Management? Well, they are America's leading provider of waste management services. This includes garbage collection, collecting and processing recycling including cardboard, paper, glass, plastic, and metal, which they can then sell on to manufacturers. They also own and operate garbage transfer stations and 263 landfill sites.

Interestingly, one other thing they're into is actually recovering the gas produced as the waste decomposes in landfills, and then they use that gas in generators to create electricity, which I think is quite interesting. It definitely seems as though the economic moat of this business revolves around their landfills. The company notes that landfills are often quite costly to get off the ground and to maintain, so what they find is that third parties tend not to start their own landfills but rather form agreements with Waste Management to dispose of the garbage they collect at one of Waste Management's landfills.

Again, this is one of those boring yet consistent companies. Turning again to Seeking Alpha, we can see the revenue slowly growing over time, operating income growing, and again another dividend-paying company with 42% of their earnings being paid out directly to shareholders. As you can see, Waste Management scores an A for dividend safety and an A+ for dividend growth, and that is very nicely reflected in this amazingly consistent chart of dividends going back to 2004.

Once again, the Gates portfolio has 35.2 million shares, which based on the 2023 dividend of $2.80 per share, totals $98.6 million per year in income for the portfolio. And the trend continues. But now we get to the second-largest position in the Gates portfolio, and this company doesn't pay a dividend at all, and that company is a business Bill was on the board for for many years.

It's a company run by a very close friend of his—that business is, of course, Warren Buffett's Berkshire Hathaway. The Gates portfolio currently holds 24.6 million B shares in Berkshire Hathaway, and this is because each year Warren Buffett donates shares to the foundation. In fact, just this year, Buffett donated $5.3 billion of Berkshire stock to The Gates Foundation and four family charities, and this is his biggest donation since he began making them back in 2006.

He donated 13 million Berkshire Class B shares, of which 9.93 million made their way to the Gates Foundation. This is what you see in Bill Gates' 13F filings in Q2; each year, there'll be a big percentage boost to the Berkshire position as Warren Buffett donates his shares, and then the foundation will sell 5 million Berkshire shares each quarter to fund the charity.

Because, of course, holding the stock, while it might give you some really solid capital gains over time, it doesn't contribute to the foundation's income like the other companies, because, of course, Berkshire doesn't pay a dividend. So a bit of a different one in the number two slot. With that said, we now move on to the number one stock in the Gates portfolio—and as you can probably guess, this stock is, well, of course, Microsoft.

Bill co-founded the company back in 1975 and, as of the 30th of June 2024, held around 35 million shares worth $15.6 billion. But he hasn't actually held Microsoft shares the whole time; interestingly, buying back in in Q3 of 2021 but really buying heavily in Q3 of 2022. I don't believe this is some sort of stock option investing or anything like that. In fact, it's well documented that Bill Gates actually divested most of his holdings over the years, so I think this is literally just a new big position backing the company he founded.

Well, this makes sense—Microsoft is currently the second largest company in the S&P 500, occupying nearly 7% of that index, and it's grown into its gargantuan size off the back of an incredibly strong switching moat with their various bits of consumer and, more importantly, business software—Windows, Office 365, Teams, Microsoft Azure. Once businesses choose Microsoft's products and get used to them, it becomes very, very hard to switch away.

This is why we see Microsoft revenue, operating income, and net income growing so incredibly quickly. This isn't a Caterpillar or a Waste Management; Microsoft's net income has grown a whopping 24.5% annually for the last 10 years. So I think Bill, with his intimate understanding of the company, has probably worked with Michael Larson to form this position, and it's paying off big time.

Since the end of Q3 2022, when he really loaded up the truck, the stock is up 85%, a very handy return in just two years. Also, to a lesser extent, Microsoft is also a dividend payer, providing some income to the charity. It pays out roughly 25% of its earnings as a dividend, with very consistent growth in those dividends over time.

Even though the dividends are certainly overshadowed by the capital growth of the position, it is still worth noting that, based on the 2023 dividend of $2.79 per share, the position still provides a cool $97.3 million of income per year to the foundation.

So overall, that is a deep look inside the U.S. stock portfolio of the Gates Foundation. One thing to remember as well is that while this is a very large stock portfolio, one thing that we don't know that much about is the T-bills he holds, and I would imagine it's quite substantial, considering yields for T-bills are around the 5% mark versus dividend yields on stocks, which are usually quite a bit lower.

But it's still interesting seeing how a portfolio is put together for something like a charity—lots of companies with solid footings in their industry, lots of moats, a bit of Buffett influence shining through, and also companies that are stable and positioned to grow nicely as the broader economy grows. There's definitely no gambling happening in the large positions in this portfolio.

That also leaves me to say, of course, that if you would like to learn this long-term Buffett-style strategy and you'd like to learn how to identify whether a company has an economic moat or whether the shares trade at a margin of safety or whether the financial statements hold up, then please do consider our courses over on New Money Education, particularly Introduction to Stock Analysis. That is a 6-hour course which goes through the full step-by-step Buffett approach with examples.

Followers of the channel can also use the discount code SAVE50 to score a $50 discount. All proceeds go towards supporting our content here on YouTube, so I really appreciate you checking that out. But with that said, thank you guys for watching. Please leave a like if you enjoyed, be sure to subscribe, and I'll see you guys in the next video.