Bill Gates's Concentrated Portfolio: A Value Investor's Case Study in Moats and Margin of Safety

The Bill & Melinda Gates Foundation Trust's portfolio is a masterclass in disciplined capital preservation. With a total value of $36.6 billion, it is not a speculative venture but a long-term engine designed to generate sustainable returns for its charitable mission. The core of this strategy is a heavy concentration in three businesses renowned for their wide economic moats and predictable cash flows. Together, these holdings-Waste Management, Canadian National Railway, and Berkshire Hathaway-account for 59% of the portfolio, a level of focus that signals a clear investment philosophy.

This concentrated approach is deeply influenced by the foundation's most significant trustee, Warren Buffett. Berkshire Hathaway alone represents 29.91% of the holdings, a direct reflection of Buffett's own value-oriented principles. The foundation's managers have chosen to hold onto a substantial portion of Buffett's annual donations, effectively embedding his investment philosophy into the trust's DNA. This isn't mere coincidence; it's a deliberate alignment with a proven model of compounding capital through durable businesses.

The portfolio's heavy weighting toward value stocks with durable competitive advantages is the thesis in action. Waste Management's moat is built on regulated landfills and recycling operations, creating a protected, essential service with pricing power. Canadian National Railway's strength lies in its vast network scale, a formidable barrier to entry that allows it to command freight rates and generate consistent cash. These are not growth-at-any-price bets. They are investments in companies whose competitive positions are designed to withstand economic cycles and generate cash for decades, a setup that prioritizes capital preservation and long-term return over short-term market noise.

Analyzing the Moats: Cash Flow, Pricing Power, and Scale

The foundation's concentrated bets are not just about owning famous names. They are about owning businesses with financial characteristics that enable them to compound value over decades. Each of the

three largest holdings demonstrates a different facet of a durable competitive advantage, from Waste Management's pricing power to Canadian National Railway's network scale, and Berkshire Hathaway's asset-backed valuation.

Waste Management's latest quarter provides a clear case study in moat strength. Its operating EBITDA margin improved to 30.6% in the third quarter of 2025. This isn't just a number; it's evidence of disciplined execution. The company's Collection and Disposal business achieved a margin of 37.5%, underscoring the strength of its industry-leading asset network and strategic pricing programs. In a sector often seen as commoditized, this margin expansion signals real pricing power and cost discipline. It allows the company to convert more of its revenue into cash flow, which can then be reinvested to grow or returned to shareholders. This is the engine of compounding: a wide moat that protects earnings and fuels growth.

Canadian National Railway presents a different kind of moat-one built on immense scale and strategic investment. Its vast network creates a formidable barrier to entry, giving it control over freight rates and consistent cash generation. Yet the market's view of this strength is mixed. Despite the underlying business power, the stock remains down 7.7% year-to-date. This disconnect suggests the market is pricing in near-term headwinds or skepticism about the pace of growth, perhaps overlooking the long-term cash flow potential of its network investments. The valuation models point to a stock trading close to fair value, but the persistent underperformance highlights the volatility that even the strongest moats can face when sentiment shifts.

Then there is Berkshire Hathaway, the ultimate test of a value investor's patience. The market's pricing here is telling. With a static P/E ratio of 12.1 and a book value per share that is high relative to its market price, the stock is valued as a conglomerate of assets, not a growth story. This is the classic sign of a margin of safety. The business is generating substantial cash flow from its diverse portfolio of operating companies, but the market is not currently rewarding it for that quality or its immense cash pile. For a disciplined investor, this is the setup: a company with a wide moat across industries, trading at a price that does not fully reflect its intrinsic value.

The bottom line is that these holdings represent different expressions of durable value. Waste Management compounds through operational excellence and pricing power. Canadian National Railway compounds through network scale and strategic capital. Berkshire Hathaway compounds through a vast portfolio of moats and a conservative valuation. Together, they form a portfolio built for the long haul, where the focus is on the quality of the cash flows generated, not the short-term noise of the stock price.

Valuation and the Margin of Safety: Assessing the Price Paid

The foundation's concentrated bets are a direct application of the value investing principle: buying a dollar for fifty cents. This requires a constant assessment of whether the current price offers a sufficient margin of safety. The evidence suggests a mixed picture, where some holdings appear fairly valued, while others may still offer a buffer.

Waste Management presents a classic valuation question. The stock has delivered a powerful 101.9% gain over five years, with a year-to-date rise of 8.9%. This strong performance raises a natural question: has the market already priced in much of the company's growth trajectory? The answer, according to a simple valuation framework, is nuanced. Waste Management scores 3 out of 6 on a checklist of undervaluation signals. This suggests the stock looks reasonably priced in some areas but appears stretched in others. The company's operational strength and pricing power are clear, but the market is now paying a premium for that quality. For a value investor, the margin of safety here may be thinner than in the past, though the underlying business remains robust.

Canadian National Railway offers a more traditional value setup. The stock has been under pressure, down 7.7% year-to-date and down 4.4% over the last year. This disconnect between the stock's performance and the company's fundamental strength in network scale and cash generation is the hallmark of a potential opportunity. On the same simple undervaluation checklist, Canadian National scores 3 out of 6. This mixed signal is telling. It indicates the market is not fully rewarding the company's long-term cash flow potential, perhaps due to near-term freight volume concerns or regulatory overhang. This creates a scenario where the price paid may still offer a margin of safety, even if the stock is not a screaming bargain.

The foundation's strategy itself implies a belief in this margin of safety. By holding these businesses for the long term, the managers are signaling that they do not believe the market is correctly pricing their intrinsic value in the short run. They are betting that over time, the durable cash flows from Waste Management's pricing power, Canadian National's network scale, and Berkshire's asset-backed earnings will be recognized. The current prices may not be perfect, but they are not necessarily wrong either. The foundation's approach is to buy the moat, not the market's daily mood. For a patient investor, that is the essence of value.

Lessons for the Individual Investor: Patience, Concentration, and Fundamentals

The foundation's concentrated strategy offers a clear blueprint for individual value investors. Its approach is a direct application of the core tenets: focus on the business, not the ticker. The portfolio's heavy weighting in slow-growing, capital-intensive value stocks like Waste Management and Canadian National Railway highlights a fundamental trade-off. These are not high-flying growth stocks; they are businesses built for predictability and durability. The foundation's managers have chosen this path, betting that the steady compounding of cash flow from wide moats will outperform the volatile, uncertain returns of chasing the next tech trend. For an individual investor, this is a stark reminder that asset allocation is a choice between different kinds of risk. You can seek growth through uncertainty, or you can seek safety and steady returns through predictable cash flows. The foundation's bet is on the latter.

This leads directly to the second, more demanding lesson: concentration requires extreme conviction. The foundation's top three holdings alone make up nearly 60% of its portfolio. This is not a diversified basket of picks; it is a concentrated bet on three specific competitive advantages. The lesson here is that you should only hold a small number of stocks if you have a deep understanding of their business and unwavering confidence in their management. You must be able to answer, as the foundation's managers have, why these particular companies will compound value for decades. This level of concentration is only prudent when you believe you have a wide margin of safety in your analysis. It is the power of conviction in action, a principle that demands both discipline and humility.

The bottom line is that the foundation's strategy is a masterclass in patience. Its holdings are not designed for quarterly trading. They are built for the long haul, where the focus is on business fundamentals-wide moats and durable cash flows-over the short-term noise of price volatility. The portfolio's heavy influence from Warren Buffett and its consistent investment in slow-growing value stocks underscore a philosophy that prioritizes capital preservation and long-term return. For the individual investor, the takeaway is to build a portfolio that reflects your own circle of competence and time horizon. If you can identify a few businesses with durable advantages and buy them at a reasonable price, you may find that a concentrated, patient approach offers a more reliable path to compounding than chasing market fads.