Big Winners for Small Investors / by Paul Elliott
In 1999
Warren Buffet reportedly made a statement that he could earn
50% profits on a
portfolio of
common stocks each year with one condition.
He could accomplish the above feat using ordinary,
publicly traded stock that everyone can
buy and hold himself. While a group of students were wondering and debating about what exactly was said and when, a college
investment class took matters into its own hands. And these brave souls stood directly across the table and demanded to know where does it stand today?
To earn 50% per year and to double a portfolio every
20.5 months Buffet will not consider
Buying Coca-cola or Berkshire Hathaway his own company. He’d buy lesser-known outfits which people never even heard.
Reason for the above being true, is that the world’s greatest investor would focus on
lightly traded small-caps with potential where individual investors have an advantage over the
pros.
Pros cannot mess with smaller stocks no matter how great the business. So if we have got half billion to put to work this afternoon, we’d end up buying some Intel about the
next Intel.
Let’s take a very extreme example. Warren Buffet, with mega-billions in cash @ Berkshire Hathaway dollars to manage, thinks to buy Key Technology an $84
million enterprise. He can’t do so because such a small enterprise like Key is irrelevant to his returns. Moreover, Key would become a microbe piece of Berkshire’s overall investment portfolio.
Further, even if Berkshire buys 10% stake in Key for $8.4 million dollars and the stock doubles in a week. The common man would go bunkers, but not Buffet who doesn’t even scratch his nose over that one.
But if Buffet has only $100000 dollars to invest, the $8.4 m doubling would matter. No wonder Buffet said in 1999, “Anyone who says that size does not hurt investment performance is selling.”
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