Former Microsoft CEO Steve Ballmer’s investment strategy is surprisingly simple: over 80% of his portfolio is concentrated in Microsoft stock. This unconventional approach, a stark contrast to traditional diversification strategies, raises eyebrows and begs the question: is Ballmer’s bet on Microsoft a stroke of genius or a risky gamble?
According to the Wall Street Journal, Ballmer firmly believes in simplicity for most investors. He complements his Microsoft holdings with stock index funds, forming a portfolio heavily reliant on his former company’s performance. His rationale? “Microsoft’s outperformed just about every other asset I could have owned,” he stated. And the numbers support his claim. Microsoft’s recent annual returns, including dividends, have averaged around 29%, significantly outpacing the S&P 500’s 13% average.
The recent AI boom, fueled by Microsoft-backed OpenAI and the launch of ChatGPT, has further propelled Microsoft’s stock price, pushing its market capitalization beyond $3 trillion. This surge undoubtedly contributed to Ballmer’s impressive returns.
Ballmer, who led Microsoft from 2000 to 2014, credits his investment philosophy to Warren Buffett’s advice that retail investors should stick to S&P 500 index funds. While Buffett himself doesn’t concentrate his holdings in a single stock, Ballmer adopted this strategy after struggling to find money managers who consistently outperformed the market.
Now boasting a net worth of $151 billion, according to the Bloomberg Billionaires Index, Ballmer revealed that he and his wife primarily invest in a U.S. and Europe-focused index fund, with potential minor holdings in Japan. He’s also divesting from private equity, focusing almost exclusively on his Microsoft holdings. “I like it. It’s simple,” he commented, emphasizing his desire for a low-maintenance, high-return investment approach.
While he expressed uncertainty about the specific index fund he owns, Ballmer suggested it’s either the S&P 500, the small-cap Russell 2000, or a similar broad market index. His other major investment, the Los Angeles Clippers NBA franchise, has also flourished, appreciating in value from $2 billion in 2014 to $5.5 billion, according to Forbes.
When asked about the applicability of his strategy to everyday investors, Ballmer advised, “I would say, ‘Keep it simple’—unless you’re really going to become an expert.”
His approach resonates with studies showing that S&P 500 index funds often outperform actively managed funds, particularly in recent years with the strong performance of U.S. assets. Morningstar data reveals that over the past decade, only 27% of active funds beat the S&P 500. Diversified funds across asset classes and geographies have also underperformed the index in 13 of the last 15 years, according to Cambria Funds.
However, the concentration of S&P 500 gains in a few tech giants like Microsoft and Nvidia exposes index investors to potential single-stock risk. Furthermore, some financial experts view the dominance of U.S. markets as a potential bubble. Ruchir Sharma, chair of Rockefeller International, warned in the Financial Times of an “over-owned, overvalued, and overhyped” U.S. market, representing a significant risk for investors.
Ballmer’s concentrated strategy, while successful so far, highlights the ongoing debate between diversification and concentrated bets. It remains to be seen whether his approach will continue to outperform the market in the long run. His success underscores the importance of understanding one’s risk tolerance and thoroughly researching investment options before making any decisions.
