Former Microsoft CEO Steve Ballmer believes that most investors should keep things simple, and his own investments are so simple that they rely overwhelmingly on just one stock.
According to the Wall Street Journalmore than 80% of his investment portfolio consists of Microsoft shares and the rest of stock index funds.
“Microsoft has outperformed virtually every other asset I could have owned,” he told the newspaper Magazine in a Q&A published on Sunday. “It’s a bit difficult to say it didn’t work out.”
Including dividends, Microsoft has returned an average of about 29% per year in recent years, while the S&P 500 has returned an average of about 13%.
That was helped by the AI boom launched by Microsoft-backed OpenAI. Since the release of ChatGPT in November 2022, Microsoft’s stock price has soared, pushing its market cap above $3 trillion.
Ballmer, who was Microsoft’s boss from 2000 to 2014, said his philosophy was shaped by Warren Buffett’s advice that retail investors would be better off parking their money in an S&P 500 index fund than trying to outsmart the market.
Of course, the CEO of Berkshire Hathaway doesn’t have 80% of his portfolio in one stock. But Ballmer chose his unusual investment strategy after having trouble finding money managers who regularly beat the market.
Now worth $151 billion on the Bloomberg Billionaires Index, he told the Magazine that he and his wife have shifted an index fund to just the US and Europe, while they “may” also own some Japanese assets. He is also leaving private equity and only follows the top holding company Microsoft.
“I like it. It’s simple,” he added. “We are very blessed financially. What I’m looking for in this case is that we don’t have to spend a lot of time, fear and brain power in an area where we are blessed enough if we make 7% because that’s the standard return on the S&P on the long term.”
As for which index fund he owns, Ballmer sounded unsure. If it’s not the S&P 500, then it’s the small-cap Russell 2000 or “a broad mirror of the market.”
Meanwhile, things also seem to be going well with his other major investment, the Los Angeles Clippers. He bought the NBA franchise in 2014 for $2 billion, and according to Forbes it is now worth $5.5 billion.
When asked if his strategy could apply to ordinary investors, he replied: “I would say, ‘Keep it simple,’ unless you’re really going to be an expert.”
Research has shown that index funds that track the S&P 500 consistently beat most actively managed funds, especially as U.S. assets dominate global markets lately.
According to July data from Morningstar, the average share of active funds beating the S&P 500 over the past decade was 27%. Moreover, funds diversified across asset classes and geographies also underperformed the S&P 500. Such portfolios have lagged the index in 13 of the past 15 years, according to June data from Cambria Funds.
To be fair, the vast majority of the S&P 500’s recent gains have come from just a handful of tech giants, such as Microsoft and Nvidia, leaving index investors vulnerable to a single-stock decline.
Meanwhile, skeptics on Wall Street see the overwhelming dominance of US markets among global investors as a warning sign.
“Talking about bubbles in technology or AI, or in investment strategies focused on growth and momentum, glosses over the mother of all bubbles in US markets,” Ruchir Sharma, chairman of Rockefeller International, wrote in the paper Financial times earlier this month. “America thoroughly dominates the mind space of global investors and is overstocked, overvalued and overhyped to a degree never before seen.”
This story originally appeared on Fortune.com
