By Adam Wong, chief editor of The Fifth Person
Last year, Forbes 400 did a quick survey to find out how the 400 billionaires on their list actually made their money.
Out of these 400, 127 inherited their billions (which is a total cop out but something that I totally wouldn’t mind) and one strategy that none of us are lucky enough to possibly use. But the rest of the Forbes 400 billionaires (273 of them) made their money the old-fashioned way — by working for it.
Now that’s something we can learn from because if these guys (and gals) can make a billion dollars starting from scratch, what’s stopping us from achieving even just a percentage of what they have? That’s still a tidy sum of $10 million — which would allow you to kick back and live like a college bum again. (You know, like before you made all that money?)
Sure, some of them might had certain advantages — like being born into a country with opportunity, proper education, etc. — that others might not have, but the point is that they made it to the billion-dollar club on their own efforts.
So why are we interested in how billionaires make their money?
Simply because the Forbes 400 list contains some of the brightest and most enterprising individuals on the planet who seriously know how to rake in the dough. In other words, they know the best and fastest ways to make a billion bucks. And if we peasants are interested in growing our wealth and make a paltry $10 million (sniff), shouldn’t we be looking at how some of the richest people in the world are making their money?
Makes sense to me.
So here goes – the top 10 ways how billionaires actually make their money:
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If you like making money the old-fashioned way like Henry Ford and his Model Ts at the turn of the Industrial Age, then manufacturing might be the thing for you. Obviously, you need huge amounts of capital and scale to be successful in this industry.
So unless you have really deep pockets to start off with, this might be out of the question. But then if you do make it here, the sheer scale that manufacturing requires will make sure that you’ll be making millions in no time flat.
If you like a little more excitement and drama in the way you make your millions (or billions), then owning a sports team might just be your cup of tea. It’s nice knowing that your entire business model is almost entirely reliant on a bunch of sweaty, grown millionaires being able to win a game of football, baseball, hockey, whatever.
Win and watch the fans lap up ticket price hikes, overpriced merchandise, and another new jersey design season after season with fanatical gusto. Lose and watch the faithless mobs literally call for your head and your business profits go down the drain. But hey, what better way to make a billion, right?
If you like something more intellectual and cerebral, then healthcare might be the thing for you. Do you remember how much money Pfizer made exactly when they released Viagra to starving hordes of 50+ year-old men? I don’t. But it must have been a 5#!+load of money because what else can happen when you finally give old men the chance to think they’re in high school again?
If you can create a drug that can cure cancer or HIV, you might just become the richest person that ever lived. But you know, even if you don’t set your sights that far, if you could just create a penis enlargement pill (like we see advertised everywhere on the Internet) that actually works, you might just be the next Bill Gates (or should I say… Pill Gates. Cue laughter. Thanks.)
Or you could take the high road and give your medical cure and patent to the world for free. Like Jonas Salk and what he did with his cure for polio, thereby missing out on a chance to be an extraordinarily rich man but in the process virtually single-handedly wiped the world clean of polio.
When he was asked who owned the patent to his polio vaccine, he replied:
“There is no patent. Could you patent the sun?”
What a man. Salute.
But if your goal is to live it up like the oil sheiks in the Middle East and parade around in your gold-plated Lamborghini, preferably with a wild cheetah as your passenger, then energy might just be the thing for you.
The world needs energy. We have an insatiable need for it. We are addicted to it. It’s no surprise that some of the biggest companies in the world by market cap are energy giants like Exxon Mobil, PetroChina and Royal Dutch Shell. Not to mention the largest company that probably exists on the planet: Saudi Arabia’s state-owned petroleum and natural gas company, Saudi Aramco, which has been estimated to be worth up to US$10 trillion. (In comparison, Apple, the largest public company, is “only” worth around US$600 billion.)
Obviously, it’s no easy feat becoming an energy czar but if you somehow managed to come from nowhere and pull it off like how Roman Abramovich did, then stuff that made other people rich (like buying a sports team) becomes small change for you.
#6 Food & Beverage
Another thing that world needs and literally can’t live without. We all need to eat and drink so desperately that we’ve made McDonald’s one of the biggest companies in the world even though they serve us burgers that never rot.
Not only is McDonald’s incredibly profitable, the people who were smart enough to secure a McDonald’s franchise for themselves are fantastically rich as well due to our appetite for food that apparently never goes bad.
Not to worry though if you missed out on a golden ticket to making a McFortune, many food entrepreneurs have made it big starting their very own F&B business as well. Not the easiest industry to be in because of all the competition, but hey — we all need to eat sometime.
If mass control and propaganda is more your thing, then the media industry is perfect for a megalomaniac like you. I mean, what better way to affect the desires and dreams of people everywhere than through the images, stories and information they consume?
Just have a look at how an entire generation of teeny boppers practically worship the ground Justin Bieber walks on even though he might be the biggest douche under 5 feet 7 inches that ever lived. If you don’t believe me, this should convince you.
I know owning a mega media company like Disney, Fox or CNN might be entirely out of the question for normal folks like you and me. But this is 2014 and the Internet has given us so many ways to create a personal media empire all by ourselves.
Felix Arvid Ulf Kjellberg, or better known by his online alias PewDiePie, is a Swedish video game commentator who happens to have the most subscribed YouTube channel in the WORLD (only surpassed by YouTube’s own news, sports, gaming and music channels).
With over 30 million subscribers, PewDiePie lets viewers watch how he plays video games — along with all the epic swearing, screeching and gibberish he spews out. Seriously folks, if you haven’t caught PewDiePie in action, you really need to check him out. (If you can’t stand him and his antics, 30 million people around the world think otherwise.)
Here’s the kicker — Pewds makes over $4 million a year in ad revenue from his YouTube channel thanks to the millions and millions of views his videos get. That’s $10,989 a DAY — all from playing video games like a zany madcap high on Red Bull.
#4 Fashion and retail
If beautiful people and beautiful clothes are more your thing, then fashion and retail is definitely right down your runway. The billionaires on the Forbes 400 who made their money in this industry include entrepreneurs like Jin Sook & Do Won Chang, the founders of Forever 21 and Amancio Ortega, the founder of Zara, who also happens to be the forth richest man in the world currently.
On a more local scale but still hugely successful is one of Singapore’s forerunners in online fashion retail — Love, Bonito. What started out as a project to sell pre-owned clothes in 2005 is now a massive seven-figure business that recently won the SME Asia Award 2013/2014 by The Asian Business Journal and The Trade and Industry Association. The brand is so prominent now that they even showcased an exclusive collaboration collection with renowned Parisian Haute Couturier, Julien Fournié.
But I don’t need all these instances to tell me that Love, Bonito is doing really well. All I need to do is to watch my girlfriend slavishly hooked to her iPad over the next hour as she continually refreshes her browser hoping to see that sold-out lilac dress she’s been eyeing covetously the last two weeks suddenly in stock again. Whereupon it is, she lets out a massive yelp, whips out her credit card, and proceeds to buy that dress with a look of triumph worthy of any ecstatic, half-crazed marathon finisher.
#3 Real estate
It’s no surprise that real estate is number three on the list and the third most common way for billionaires to make their billions. As Mark Twain famously quoted:
“Buy land, they’re not making it anymore.”
We all intrinsically know that real estate is one of the most valuable assets we can own simply because we all need land to live on! But if you’re not lucky enough to be born a monarch of England (currently Queen Elizabeth II) and own 1/6 of the world’s land including prime real estate spots like the whole of friggin’ Great Britain, Northern Ireland, Canada, Australia and a few other spots here and there, then you just have to do it on your own.
Even then, it can highly lucrative. Take a look at Singapore’s property price index.
From 1975 to 2014, the index has grown 28.04 times. In other words, a $100,000 home back in 1975 is worth approximately $2.8 million today. But of course, the danger is buying a property at the top end of the property cycle like in 95/96. If you had bought something then, you would have needed to wait 15 years just to break even on your investment!
Plus the fact that an asset like real estate is relatively illiquid and you’re taking on a hefty degree of risk because you need to take on a mortgage, knowing when and how to invest in real estate is another ball game altogether. If you get it right, you’re in for a massive payday. But if you don’t… you could be stuck with something you can’t sell for a profit for a very long time to come.
It’s no surprise that technology is the second most common way for billionaires to make their money; the sheer scale and speed at which technology can reach and affect people globally allows someone to generate wealth in ways not possible a hundred years ago.
Microsoft might seem really old school now but back in the 90s Windows was the hottest thing around since sliced bread and has made Bill Gates the de facto richest person in the world for the last two decades. (He still is by the way.)
Today, it’s tech companies like Google and Facebook which are changing the way we practically live our everyday lives. Google kicked off as a research project in Stanford in 1996 and Facebook started life in 2004 as a closed network for Harvard students before morphing into the multi-billion dollar behemoths they both are today and in the process making their founders exceedingly rich. Facebook founder, Mark Zuckerberg, has a net worth of $33.3 billion and was for the longest time the richest person under 30. He’s a little too old for that now. Snigger.
But if ruling the tech world is not something you envision, you can still strike gold as a “regular guy” in other ways. In Singapore, two brothers started an online coupon deal site, Beeconomic, in 2010 with life savings of $50,000. Six months later, their business was bought over by the largest coupon deal site in the world for a reported $24 million and is now Groupon (Singapore).
Another example — you might have heard of the mobile app game, Flappy Bird, which in early 2014 was the most downloaded free game in the iOS and Google Play app store globally. If you haven’t played the game before, you probably saved yourself from destroying your iPhone in a rage of expletive fury in the first five minutes. But even if you do, the creator of Flappy Bird, Dong Nguyen, doesn’t really give a damn because he’s making $50,000/DAY in ad revenue from the game until he reached a point of nirvana and decided that he had enough of making too much money and decided to remove the game entirely from the app store.
And finally… the #1 way of getting rich for both self-made and inherited billionaires is investing. And it shouldn’t be a complete surprise that investments are the most common way for billionaires to make their money.
As an investor, you can invest and make money across the board — manufacturing, healthcare, food, tech, etc. — you’re not limited to any one industry. As long as you know how to pick the right companies to invest in, you can make a fortune through your investments.
Instead of running a business the likes of Microsoft or McDonald’s, Warren Buffett has simply devoted nearly his entire life to picking the best stock investments and he does it so well that he’s third richest person in the world with a net worth of $67.6 billion.
His holding company, Berkshire Hathaway, owns significant stakes in companies across different industries including IBM, Coca-Cola, Goldman Sachs, GEICO, Proctor & Gamble, American Express, Heinz, and Business Wire.
If you need a little more convincing that investing is the way to go, the chart below shows you the returns of different asset classes over a period of time:
Source: Russell Investments
As you can see, equity (stocks) has given the highest overall returns compared to bonds, commodities, cash and returns comparable with real estate (but with less volatility). Not to say that the stock market can’t be volatile at times too, but then again that gives you the opportunity to buy stocks at lower prices and sell at higher ones — again, you just need to knowwhen and how to invest.
And if you’re someone just starting out looking for a way to invest, the best thing about equity is that you can start small: you don’t need a large stockpile of cash for a down-payment on a property nor do you need tens or hundreds of thousands of dollars in start-up capital for a business. In fact, most brokerage firms will allow you to open a trading account with deposits as low as $1,000. Which is absolutely perfect for someone who’s lazy, flops around, and writes blog posts about how billionaires make their money.
ABOUT THE AUTHOR
Adam Wong is the chief editor of The Fifth Person and was featured on 938LIVE as a guest expert on MoneyWise. He is also the author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller’s List in 2009 and Value Investing Made Easy, which made the Kinokuniya Business Bestseller’s List in 2013. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online. If you’re interested to learn more about stock investing, you can join The Fifth Person Newsletter and receive free weekly insights on how you can generate higher returns and dividend income from the stock market.
* The opinions expressed in this post are those of the author and do not necessarily represent the views of Business Insider.