The Trillion-Dollar Friendship
Warren Buffett and Bill Gates met in 1991 at a dinner party hosted by Gates' mother. Despite their different worlds—Buffett avoided technology stocks; Gates built the world's most valuable tech company—they became close friends. Their friendship would span decades, include the co-founding of the Giving Pledge, and involve billions in charitable giving.
It would also involve one piece of advice that, in hindsight, may have cost Gates more than any single decision in financial history.
The Advice: Diversify
After becoming friends with Warren Buffett, Bill Gates began to systematically diversify his portfolio and sell Microsoft shares.
The logic was impeccable. Buffett—the most successful investor of the 20th century—preached the gospel of diversification for anyone who wasn't a professional investor. Don't put all your eggs in one basket. Reduce concentration risk. Protect your downside.
Gates listened. From his post-IPO stake of 45% of Microsoft, he steadily sold shares over the next three decades. By 2024, Gates owned just 1.3% of Microsoft—down from nearly half the company.
The proceeds went to Cascade Investment, Gates' private investment firm, which diversified into:
- Republic Services (waste management) — 34% stake
- Ecolab (hygiene technology) — 21% stake
- Canadian National Railway — 9% stake
- Deere & Company (agriculture) — major stake
- Various other holdings across multiple industries
Gates also gave tens of billions to the Bill & Melinda Gates Foundation, funding global health initiatives, education, and poverty reduction.
It was textbook wealth preservation. Exactly what any financial advisor would recommend.
And it may have cost him a trillion dollars.
The Math That Haunts
Let's run the numbers:
1986 IPO: Gates owned 45% of Microsoft, valued at $350 million.
2025 Reality: Microsoft's market cap is approximately $3.2 trillion.
The Calculation:
- 45% of $3.2 trillion = $1.44 trillion
Gates' Actual Net Worth: ~$130 billion
The Gap: Over $1.3 trillion in theoretical wealth
If Bill Gates had simply held his original Microsoft stake and done nothing else, he would today be worth more than Elon Musk and Jeff Bezos combined. He would be the world's first trillionaire by a comfortable margin. He would own a stake in a single company worth more than the GDP of Spain, Australia, or Mexico.
Instead, by following conventional wisdom—including the advice of his famous friend—Gates diversified away from the greatest wealth-creation machine in history.
The Ballmer Contrast
The comparison with Steve Ballmer makes the point even sharper.
Ballmer joined Microsoft in 1980 as the company's 30th employee. He was Gates' college friend and, initially, his assistant. When Microsoft incorporated, Ballmer received an 8% stake—funded partly by Gates himself diluting his own holdings.
From that 8%, Ballmer followed a radically different strategy than his mentor: he held.
While Gates diversified, Ballmer stayed concentrated. While Gates built Cascade Investment, Ballmer kept his Microsoft shares. While Gates gave billions to charity, Ballmer focused on his core holding.
The result?
July 2024: Steve Ballmer passed Bill Gates to become the sixth-richest person in the world.
The employee became richer than the founder. The assistant surpassed the boss. The man who started with 8% ended up with more wealth than the man who started with 45%.
More than 90% of Ballmer's $157 billion net worth remains in Microsoft shares. He never signed the Giving Pledge. He never built a diversified family office. He just held.
The Ultimate Irony: Gates gave Ballmer his initial stake. Gates' advice (via Buffett's influence) led Gates to diversify. Ballmer ignored that playbook entirely. And Ballmer won.
Was Buffett Wrong?
Here's where it gets interesting: Buffett himself doesn't follow the advice he gave Gates.
Buffett's Berkshire Hathaway is famously concentrated. His top five holdings typically represent 70%+ of his public equity portfolio. Apple alone has represented over 45% of Berkshire's stock portfolio at times.
Buffett's actual investment philosophy is closer to: "Diversification is protection against ignorance. It makes little sense if you know what you're doing."
So why did he advise Gates to diversify?
Several possible explanations:
1. Different Circumstances
Buffett built his fortune through capital allocation—buying undervalued companies. Gates built his through a single company he created. Buffett may have reasoned that Gates lacked the investment expertise to pick winning stocks outside his domain.
2. Risk Management for Concentrated Founders
Founders face unique risks. A single scandal, competitive disruption, or regulatory action can destroy a company. Yahoo, Nokia, Kodak—companies that once dominated their industries are now cautionary tales. Microsoft could have been one of them.
3. The Dot-Com Bubble
Gates and Buffett's friendship deepened in the 1990s, just as the tech bubble was inflating. Microsoft's stock crashed from $60 in 1999 to $21 by 2000. It took 15 years to recover its previous peak. During that period, diversification looked brilliant.
4. Different Goals
Perhaps Buffett understood that Gates wanted to be a philanthropist more than a wealth-maximizer. Diversification enabled the Gates Foundation's work. A trillion-dollar Microsoft stake would have been harder to liquidate for charitable purposes.
The Counterargument: It Wasn't Bad Advice
Before we condemn Buffett, consider what Gates got in exchange for that "lost" trillion:
1. Peace of Mind
Concentrated wealth is stressful. Gates slept well knowing a Microsoft disaster wouldn't wipe him out. Ballmer took that risk; Gates chose not to.
2. The Gates Foundation
The diversification and giving enabled one of history's most impactful philanthropic organizations. The Foundation has distributed over $50 billion fighting disease, poverty, and educational inequity. Would a theoretical extra trillion dollars have created more good than what Gates already accomplished?
3. Survivorship Bias
We're looking backward at what happened. What if Microsoft had failed? What if antitrust regulators had broken it up? What if a competitor had displaced Windows? In any of those scenarios, Gates' diversification would look like genius.
As Nassim Taleb pointed out when this story went viral:
"Diversification is not aimed at raising returns but lowering variance ACROSS possible histories. What if MSFT went to 0? Consider the thousands of entrepreneurs who DID NOT diversify."
For every Gates who diversified too early, there are hundreds of founders who held too long and lost everything.
4. Liquidity and Control
A 45% stake in Microsoft would be nearly impossible to sell without cratering the stock. Gates' gradual diversification gave him usable wealth rather than paper billions.
The Chronos Score Perspective
From a Chronos Score standpoint, this story illustrates a fundamental tension:
Concentration builds Chronos Score potential. The highest possible returns come from concentrated bets on exceptional assets. A young founder with all their wealth in a high-growth company has astronomical Chronos Score potential.
Diversification preserves Chronos Score. But concentrated bets can go to zero. Diversification reduces upside while protecting downside. A diversified portfolio grows more slowly but rarely collapses entirely.
The Optimal Strategy Depends on Circumstances:
- If you have unique insight into an asset (like Gates with Microsoft), concentration may be justified
- If you've already achieved generational wealth, preservation may matter more than growth
- If your goals extend beyond maximum wealth (philanthropy, lifestyle, family), diversification enables flexibility
Gates at 40 with $10 billion made a reasonable choice to diversify. His Chronos Score was already in the stratospheric range. Protecting that wealth enabled everything that followed.
But if we're being ruthlessly honest: pure wealth maximization would have meant holding. The math is clear.
The Real Lesson
This story isn't really about whether Buffett gave bad advice. It's about the impossibility of knowing the future.
In 1995, Microsoft looked potentially vulnerable. The internet was changing everything. Competitors were circling. Government regulators were investigating. Selling Microsoft to diversify was the prudent choice—the choice any reasonable advisor would have recommended.
That Microsoft went on to dominate cloud computing, survive the mobile revolution it lost, and become one of the most valuable companies in history was not foreordained. It required Satya Nadella's brilliant leadership, the Azure bet paying off, and the AI revolution landing squarely in Microsoft's lap through their OpenAI investment.
Buffett couldn't have predicted that. Gates couldn't have predicted that. No one could.
The advice was reasonable. The outcome was extraordinary. Those aren't the same thing.
What Would You Do?
Imagine you're 40 years old with a $15 billion stake in a single company you founded. The most successful investor in history—your close friend—advises you to diversify. Every financial advisor agrees. Your spouse agrees. Common sense agrees.
Do you hold?
It's easy to say yes in hindsight, knowing Microsoft would become a $3 trillion company. It's much harder to say yes in real-time, facing real risks, with no guarantee of the future.
Gates made the safe choice. Ballmer made the bold choice. Both are worth over $130 billion. Both made reasonable decisions given their circumstances and risk tolerances.
But one of them left a trillion dollars on the table.
Conclusion: The Trillion-Dollar Mistake?
Did Warren Buffett give Bill Gates the worst advice in financial history?
By pure dollars: probably yes. No other piece of advice has ever plausibly cost someone over a trillion dollars.
By risk-adjusted logic: probably no. Gates achieved his goals—enormous wealth, enormous impact, and a life well-lived. The theoretical trillionaire portfolio would have been riskier, less liquid, and wouldn't have funded the Gates Foundation's world-changing work.
The story ultimately reveals the limits of any financial advice, no matter how wise the source. Even the Oracle of Omaha can't predict which companies will dominate decades in the future. Even the most successful investor alive can give advice that, in hindsight, looks like a trillion-dollar mistake.
The Chronos Score measures potential. But potential requires surviving long enough to realize it. Gates chose survival and impact over maximization. That's not a mistake—it's a choice.
Still, somewhere in a parallel universe, there's a version of Bill Gates who ignored his friend's advice, held his Microsoft shares, and became history's first trillionaire.
That Gates is worth $1.4 trillion. Our Gates is worth $130 billion—plus the satisfaction of saving millions of lives through philanthropy.
Who made the better choice?
That depends on what you think wealth is for.
Key Statistics:
- Gates' original Microsoft stake (1986): 45%
- Gates' current Microsoft stake (2025): ~1.3%
- Microsoft market cap (2025): ~$3.2 trillion
- Value of original stake if held: ~$1.44 trillion
- Gates' actual net worth: ~$130 billion
- Ballmer's Microsoft stake: ~4%
- Ballmer's net worth: ~$157 billion
- Percentage of Ballmer's wealth in Microsoft: >90%
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