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The Secret Lesson of Gates' and Buffett's Extreme Wealth

Stocks in this article: BRK.A IBM MSFT X

Buffett hopes to give his fortune away through Gates' foundation, but that job gets harder as the hoard gets bigger. Imagine -- Gates now has to find a way to put over $130 billion to work for good causes. What 2013 shows is that job may actually grow.

Buffett's annual letter to Berkshire-Hathaway (BRK.A) shareholders shows him taking a very conservative tack. His big investments are in insurance, regulated utilities, financial companies and manufacturing. He admits to not understanding technology and his one big tech investment, IBM (IBM), lost money.

That conservatism is also reflected in his advice. At 83, he still emphasizes long-term value, he still likes index funds and bonds over more active investments, he still invests mainly in America and he still doesn't like pundits, even though reporters insist on treating him like one.

During good years -- and 2013 was a very good year -- fortunes rise almost by themselves. It's important to realize when you're counting your own wins from last year that it takes no special genius to make money during a boom.

The real lesson Buffett wanted to emphasize this year was staying the course in a bust. He described in detail two real estate deals he made during the course of his long career. Both were distressed properties managed by government. Avoiding panic during a panic is the real key to getting wealthy, he wrote.

But the deeper lesson of both Gates and Buffett is this. Anyone can look smart when things are going well. When things are going well, wealth can grow faster than it can be given away.

Gates and Buffett have barely begun to give, and the result of that giving will transform the world of your grandchildren, as Carnegie's giving transformed the world for Buffett and Gates.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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