If you believe that the rich get richer, why not just invest in them instead of against them? I am not talking about your next door neighbor with a couple German cars and a 45 foot boat…I am talking about investing with Billionaires! How? by following the Billionaire Index. Created by Dr. Joel Shulman, C.F.A., of Babson College the Forbes Billionaire Index,
is comprised of shares of 571 publicly traded companies that are owned, created or managed by individuals on the Forbes billionaires list.
I think I like the idea so much because Dr. Shulman focuses on those businesses where the driving force behind the company is the same person who brought that company from a small business to the behemoth that it is today. That type of spirit is often felt throughout the entire company,
The research suggests that many individuals on Forbes’ billionaires list are entrepreneurial in nature. These billionaires helm companies with common entrepreneurial attributes, for example: organic revenue growth, clean and positive corporate reputation, transparent governance, lean costs and modest debt. Additionally, the entrepreneurial billionaires themselves hold an above-average ownership stake in the organization
I am sure things change in that entrepreneur’s life but I’d like to believe that some of that drive and passion especially for his or her mistress (e.g. the business) is still there.
I couldn’t find an ETF or Mutual Fund that attempted to mimic the Index, but if there were one (or if someone could point one out) I would think about investing it, or at the very least, see what they pick up and drop (and why).
How has the Forbes Billionaire Index Performed?
The whole topic is irrelevant if the index isn’t successful (or maybe its lack of success would be interesting too). According to Forbes,
From April 1996 through March 2011, the Forbes U.S. Billionaires Index increased about 400%, compared to increases of 100 % to 150% for the Russell 3000 (mid-cap), Russell 2000 (small-cap), S&P 500 (large-cap) and MSCI World Index, the profs calculate. Over the same 15 years, the basket of billionaires stocks provided an annualized compounded rate of return of 11.03%, while the other benchmark indexes returned from 4.92% to 6.41%. The Forbes U.S. Billionaires Index was more volatile and underperformed the other benchmarks in declining markets, producing what the Shulman and Noyes describe as a “wild ride” for investors.
I don’t think that is particularly shocking to find that this type of index would be more volatile considering they are taking concentrated positions in specific companies.
Would you Invest in the Billionaire Index?