What do you do if you have $50 billion in net worth and almost all of it is tied up in a tech, formerly high-growth company? Let's say that company was Microsoft ( MSFT), and you were Bill Gates. How would you diversify?

Cascade Investment is a private equity firm owned by Gates, his investment vehicle outside of Microsoft. (You can see Cascade's complete list of holdings on Stockpickr by clicking here.) Whenever he sells shares of Microsoft and he's not sending that money immediately to charity, it probably finds its way to Cascade, where he diversifies into stocks as far from Microsoft as can be imagined.

At Cascade, you can clearly see the influence of Warren Buffett. ( Click here to see Warren Buffett's Stockpickr page and his top and recently changed holdings.) Their portfolios don't overlap much -- although both own Berkshire Hathaway ( BRKA) stock, where Gates is a director -- but they do have a few qualities in common:

  • A focused portfolio: Cascade has $3.6 billion in investments in only 10 holdings; Buffett has long been a proponent of maintaining focus, as there are only so many companies an investor can really study at a time.
  • Very consistent earnings and growth.
  • Boring businesses.
  • Sometimes, good brands.

For instance, about as far away from Microsoft as you can get is garbage collector Republic Services ( RSG). No one really talks about it, but the fact remains that there is more trash generated each year than the year before, and that's probably best exemplified by the consistent chart of Republic Services' stock price over the past five years:


Republic Services (RSG)


Even at these highs, the company still seems cheap. It has $854 million in EBITDA (earnings before interest, taxes, depreciation and amortization) and $7 billion in enterprise value (market cap minus net cash). So the company has a multiple over cash flows of just 8.5, which puts it in takeover territory.

Another interesting stock in Gates' portfolio is Fisher Communications ( FSCI), which owns a number of television and radio stations. Of the 12,000 portfolios entered into Stockpickr, none of the nonprofessionals have selected this stock and only two professionals have: Gates and Barington Capital.

I visited the folks at Barington a little over a year ago, and their comment to me then -- and I don't know if this has changed since -- is that they haven't had a down investment since 2001.

They are activists, and invest in situations that they feel are deeply undervalued. They are also long-term holders and have been up every year since inception. That includes 2002, when the market was down 22% and Barington was up 12.75%. In 2006, Barington was up 19.11%. Here are some of Barington's top holdings on its Stockpickr page.

The remainder of Gates' portfolio includes solid and growing utility companies, natural resource companies and the occasional hotel.

Stockpickr tip of the day: Stockpickr has blatantly "borrowed" features from every search engine and major Web site.

From Google we took the idea of the critical "I'm Feeling Lucky" button and made it part of our search feature. If you ever call me on the phone and it seems like I'm not paying attention, it's probably because I'm addictively hitting "I'm Feeling Lucky."

Whenever you click on that button, the Stockpickr system takes you to either a random professional portfolio or a do-it-yourself portfolio that has analysis for at least three stocks. The results are often very surprising because I usually find the do-it-yourself portfolios with analysis to be more worthwhile than most of the professional ones, particularly since many hedge fund managers have been using Stockpickr to enter their portfolios.

For instance, Keyrock Energy Partners is a good micro-cap energy-focused fund in Dallas that has been keeping its positions up-to-date on Stockpickr.

Zetta Capital keeps its do-it-yourself portfolio up-to-date with analysis as well.
At the time of publication, Altucher and/or his fund had no positions in any stocks mentioned, although positions may change at any time.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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