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Meet Michael Larson, Bill Gates’ Mentor

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Frank Voisin is the author of the popular value focused website Frankly Speaking, found at http://www.FrankVoisin.com

Bill Gates has described Warren Buffett as having the greatest impact on Gates of anyone outside Gates’ own family. Though he acknowledges this impact extends far beyond investing, for the purposes of this site, I’ll confine the discussion to Gates’ investments.

We all know how Gates became wealthy, but what many may not be aware of is that he has been shifting his wealth away from Microsoft Corporation (NASDAQ: MSFT). Over the last five years, Gates reduced his ownership of MSFT from 957.5 million shares to 501 million shares. These sales have been occurring for a long time:

Since the company went public, Gates has sold an average of five million Microsoft shares a quarter, adjusted for splits. That works out to around 80,000 shares every single trading day.

The reason? Gates is moving his capital into his personal investment vehicle Cascade Investment LLC.

What does Warren Buffett Berkshire Hathaway Inc. (NYSE:BRK.A) (BRK.B) have to do with all of this? It turns out that Cascade is run by Michael Larson, a value investor who reportedly follows Buffett’s principles in investing on behalf of Gates (and, indirectly, Buffett himself, since Cascade manages the portfolio of the Bill and Melinda Gates Foundation which is the beneficiary of Buffett’s pledged largesse).

So what do we know about Larson? From this GlobeAdvisor article, we gain some insight into his background:

Mr. Larson was born in North Dakota. He earned a degree in economics from Claremont McKenna College in California and an MBA from the University of Chicago, all by age 21. After graduating, he moved into the investment world and landed a job with Putnam Investments in Boston, according to the profile in Fortune. Mr. Larson left Putnam after two years to form his own firm. But before he could get properly started, he received a phone call from a headhunter searching for an investment professional on behalf of Mr. Gates. Mr. Larson and Mr. Gates hit it off and before long Mr. Larson flew to Seattle to take the reins of BGI. The two keep in constant touch, but Mr. Larson is left to manage the portfolios largely as he sees fit.

Like many value investors, he eschews publicity. His business cards reportedly do not list the company he works for, and he has traditionally avoided interviews. The most insight we can gain about Larson is from a wide ranging and in-depth Fortune interview he gave in 1999. Though some of the content is out of date, the details about Larson are valuable:

Michael Larson, the son of an industrial engineer, grew up in North Dakota and then in Albuquerque. When he graduated from high school, he wanted to join the Coast Guard but couldn’t because he was only 16. He attended Claremont College, finishing in three years with a degree in economics, and then went directly to the University of Chicago, where he picked up an MBA at the age of 21. From there Larson went to work for Arco doing mergers and acquisitions. Then he shifted gears and joined Putnam Investments in Boston, managing bond funds. …

In fact, he’s an old-fashioned value investor with a macro view. Larson doesn’t restrict himself to stocks; he looks at bonds, currencies, commodities, land, and direct investments in companies–we’ll get to the details presently. “My most important job is asset allocation,” he says. “That’s where the real money is made.” Larson is iconoclastic yet fundamentally conservative, which, if you think about it, is a pretty good description of his only client.

Unfortunately, unlike investment managers like Seth Klarman or Bruce Berkowitz, outsiders are never privy to Larson’s investment theses or general investment philosophy. All we can suss out of his interview is that he places a lot of emphasis on asset allocation and sector rotation. This would lead one to conclude that Larson is most likely to be invested in sector ETFs, but this is not the case since his portfolio holdings are focused on individual companies, like his most recent purchase of Diamond Foods, Inc. (NASDAQ:DMND) which collapsed due to an accounting scandal. Until Larson decides to speak out about his investment process, the best we can do is track his moves and arrive at our own conclusions. You can see his portfolio holdings by tracking the 13F reports he is required to report with the SEC (Bill & Melinda Gates Foundation Trust filings here and Cascade Investment LLC filings here).

What do you know about Michael Larson?

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