“I think I could make you a 50% return a year if I only managed $1 million. No, I know I could. I guarantee that”.
Warren Buffett
Buffett said this in 1999 & let’s look at what he is saying about such a high return.
This is the full quote he said in the interview.
“If I was running $1 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rate of return I’ve ever achieved was in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $ 1 million. No, I know I could. I guarantee that”.
Warren Buffett
- At this moment Warren Buffett is managing hundreds of billions of dollars. Berkshire Hathaway his investing firm is worth more than $600 billion & Buffett is managing a lot of Berkshire Hathaway’s net worth. However, if Warren Buffett was only going to manage $1 million it would be a completely different story.
Invest in Small Cap Stocks
- Because Warren manages billions of dollars he has to look at really big stocks. There’s no point in Buffett investing just 1 million dollars in a smaller company because even if he makes let’s say $500,000 on this It will do nothing when you compare it to the billion dollars that Buffett is managing.
- If Buffett managed $1 million he could invest in those smaller companies & it would make a big difference to his overall portfolio. If he made $500,000 that would affect his whole portfolio & give him a 50% return making it worthwhile.
- The first thing you do is choose an area that you are interested in & you become an expert in it. Then you go & look at the small stocks in their industry the stocks that you can understand. As you go over all these stocks you will find little wrinkles here & there. Little hidden gems, little arbitrage opportunities which can make you a lot of money.
“There are little tiny areas, as I said, in that Adam Smith interview a few years ago, where if you start with a & you go through & look at everything & look for small securities in your area of competence where you can understand the business occasionally find little arbitrage situations or little wrinkles here & there in the market. I think working with a very small sum, there is an opportunity to earn very high returns”.
Warren Buffett
Invest Well Below Intrinsic Value
- Only buy stocks when they are selling for a price well below their intrinsic value. The beauty about looking at small-cap stocks they are often so under analyses you can find plenty selling well below their intrinsic value.
Be Fearful When Others are Greedy & Greedy When Others are Fearful
- From time to time, investors are highly driven by emotions. In one minute they are the happiest group of investors. They think they’re going to become rich. The next minute they all panic because earnings are down for a quarter & they run for the hills.
- If you can take a step back & look at the facts you will make a lot of money & what you’ll find is that the best opportunity to make money is when everyone else is fearful and when everyone is running for the hills. That’s when you want to buy a stock.
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