Steve Ballmer, the Non-Investing Guru of Investing
The former CEO’s unconventional and hugely profitable strategy: own a lot of Microsoft
The ultrawealthy tend to follow a time-honored model of investing: diversifying.
Much like universities and pensions, the richest people on earth spread their money across stocks, bonds and a cadre of alternatives, such as private equity, hedge funds and real estate.
Or at least most of them do. There is one very glaring exception: Steve Ballmer.
The former Microsoft MSFT -0.10%decrease; red down pointing triangle chief executive has put nearly all his eggs in one basket and kept them there for years. Ballmer has virtually no exposure to alternative investments. Instead, he keeps more than 80% of his portfolio in Microsoft stock and the rest in stock index funds.
As the stock market has climbed to new heights and Microsoft has transformed into one of the best-performing stocks of the past decade, Ballmer’s investment strategy has proven incredibly effective.
“Microsoft’s outperformed just about every other asset I could have owned,” said Ballmer, Microsoft’s top individual shareholder, in a recent interview with The Wall Street Journal. “It’s a little hard to say that it hasn’t worked out.”
Ballmer, 68 years old, served as CEO from 2000 until stepping down in 2014, after coming under pressure for not moving fast enough to compete with Apple and Google in key consumer markets. During his tenure at Microsoft’s helm, the company’s stock price fell by about a third. When he left the company, Microsoft’s market capitalization was around $300 billion.
These days, powered by its cloud business and the company’s prescient bets on artificial intelligence, it is more than $3 trillion.
To put it another way, Microsoft has gained an average 28.8% annually, including dividends, over that rough time span. In that same time, the S&P 500 returned an average 12.9% a year, including dividends. Endowments of more than $1 billion gained an average 7.8% a year, according to Wilshire Trust Universe Comparison Service.
Few have benefited more than Ballmer, who calls himself “a non-investor investor.” He now ranks ninth on the Bloomberg Billionaires Index list of the world’s richest people, above even Warren Buffett, with an estimated net worth of more than $150 billion. This summer, he briefly surpassed his former boss Bill Gates, who gives regularly to his foundation in a mix of cash, Microsoft stock and other securities.
As simple as his investment philosophy is, it took Ballmer decades to implement. In the 1980s, he bet on individual stocks such as Colgate-Palmolive on the advice of CNBC’s Jim Cramer, a college buddy who was Ballmer’s financial adviser at Goldman Sachs. He then tried diversifying but, in part, found it difficult to identify money managers who consistently outperform. So he dumped most of his alternative investments.
His fortune now is parked almost exclusively in stock index funds—and Microsoft. (He declined to say how big his stake is.)
Connecting via Microsoft Teams from his office in Bellevue, Wash., Ballmer spoke with the Journal about how he manages his money.
WSJ: Can you walk us through your investment strategy?
Ballmer: I own an index fund. We moved it back to be just the U.S. and Europe. Keep it simple. Maybe we own Japan too. We’re mostly dialing out of private equity, but you can’t get out of that overnight. The only stock I really study still is Microsoft, because that’s still overwhelmingly, overwhelmingly, overwhelmingly the No. 1 thing that I own.
I like it. It’s simple. We’ve been very blessed financially. What I seek in this instance is not to have to spend a lot of time, anxiety, brain power in an area where we’re blessed enough if we make 7% because that’s the standard return on the S&P over the long run.
[My approach] partly was shaped by Warren Buffett, who argues most people should just buy an S&P index fund. At least for us [Ballmer and his wife, Connie], making an extra 0.7% compounded isn’t going to change our lives. At the end of the day, we’ll be able to give our kids all that we want to give them, whatever that winds up being. I make no comment on that. Everything else we do is just a balance between how much goes to philanthropy and how much goes to the government.
WSJ: I feel like I would be tempted to check Microsoft’s stock price every day. Do you do that?
Ballmer: Oh, I check it, you know, not infrequently. But not because it matters financially. The stock market is two things to people. One is—how am I doing financially? And the other is a little bit like studying the box score—did my team win yesterday?
WSJ: You mentioned the S&P 500. Is that literally the index you own? Or do you have a more bespoke bucket of products of different indexes?
Ballmer: If it’s not the S&P, it’s the Russell 2000 or some broad mirror of the market. We do a little bit of tax harvesting. You could read about that, if you like, on ProPublica. They have my tax return and wrote it up.
[ProPublica reported last year, based on a trove of leaked Internal Revenue Service data, that Ballmer and other billionaires use tax-loss harvesting strategies to reduce the taxes they pay. It estimated Ballmer benefited from at least $138 million in tax savings between 2014 and 2018 via trades Goldman Sachs made for him that violated the spirit, if not the letter, of a law prohibiting so-called wash sales.
The inquiries from ProPublica prompted Goldman to halt such trades, and the bank said at the time it had conducted a review and found a small percentage of tax-efficient trades it makes for clients were “inadvertently made in a manner inconsistent with our strategy.” Goldman also said it tries to provide investment advice “consistent with both the letter and the spirit” of relevant laws and regulations.
A Ballmer spokeswoman said in a statement, “Steve takes his responsibility to pay taxes very seriously and has always paid what he owes.”]
We did decide to not own oil and gas stocks anymore. That’s a decision we made in the last year or so as we’ve gotten more involved in climate. It’s not going to change the world of valuations for those stocks, but it feels more value consistent. So those would be the perturbations in what we do.
WSJ: Do you ever discuss your investment philosophy and strategy with other very wealthy people? Do your friends think you’re crazy?
Ballmer: Well, no, not at all, because it’s a little hard to say that it hasn’t worked out. I don’t know how anybody else has done, because everybody’s got their strategy, and it’s hard to peek inside their curtains.
In terms of a non-Microsoft piece, the indexes have done pretty well. And people say I’ve done well on my Clippers investment. (Ballmer bought the NBA’s Los Angeles Clippers in 2014, after he stepped down from Microsoft.)
WSJ: You paid $2 billion for the Clippers. There are rankings that put the value of the team now around $4 billion or $5 billion.
Ballmer: Look, if it’s a double in 10 years, it’s basically an index fund. And oh, by the way, it’s really underperformed Microsoft. I’m not saying it’s a bad investment—don’t get me wrong. But again, compared to Microsoft—I mean, honestly, almost any investment compared to Microsoft just pales.
WSJ: Do you think there’s anything applicable in your investment strategy to an everyday investor?
Ballmer: I would say, ‘Keep it simple’—unless you’re really going to become an expert.
I always like to talk about [how] in business, you have what I’ll call zero-trick ponies, one-trick ponies and two-trick ponies. A zero-trick pony is a business that never gets to incredible scale. A one-trick pony is what you do when you get to scale one big idea—you milk it, you milk it, you milk it. Most tech companies are one-trick ponies. Cisco, great company, one-trick pony. Even Google, I might argue, is still a one-trick pony centered around advertising. Amazon, two-trick pony. Apple, two-trick pony. Microsoft, two-trick pony.
If you put that back in the investment context, you can’t necessarily believe that an investor who did one trick super well will necessarily do the next investment trick super well, at least by my mental model. I haven’t studied every investor in the world, and maybe there’s people who consistently are doing great. But as in operating businesses, finding multiple-trick ponies is really hard. Why should somebody who’s a casual investor believe they’re necessarily going to find the people who can do these amazing tricks?
WSJ: Do you think there’s any luck in how well you’ve done owning Microsoft stock and holding it?
Ballmer: If there’s anybody that will tell you all their success is because they were a genius, I’d say they should go look for the luck.
Look, we had luck in Microsoft’s success. Forget the stock price. I had luck, essentially, in getting to listen to the right people. But I also had luck in terms of my loyalty to the company and not wanting to be a seller as a leader of the business. It turned out to be a great investment thing, too.
