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JaysRage (93.74)

Why a small investor shouldn't be following Buffet

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December 04, 2009 – Comments (5) | RELATED TICKERS: GE , KO , BNS

In a recent interview about the Burlington Northern acquisition, investing guru Warren Buffet admitted that he did not receive a huge discount in his purchase of the railroad.    He stated that "solid returns are sufficient".     He has also recently mentioned that he could return 50% easily in the current market, if he were dealing with $1 million or less. 

Shouldn't that be the target (or better) of a small investor (50%)? 

Buffet buys into large companies because he has to find a place to put $34 billion dollars.   When you are trying to find a good place to put $3400, there are many many more options that have much better growth potential.   In the scheme of things, such a small amount does not have enough of a presence to influence the stock up or down by itself.   You can fly under the radar and pick price points of entry and exit that are far superior to someone looking to move large amount of cash into or out of a position.  

Remember that when you're contemplating the investment strategy of "If it's good enough for Buffet, it's good enough for me".   Use your competitive advantage of invisibility.    

Good enough for Buffet is not good enough for me.   Not by a LONG shot.  

 

5 Comments – Post Your Own

#1) On December 04, 2009 at 5:37 PM, ikkyu2 (99.51) wrote:

Yes, I made this mistake when I bought into GE shortly after Buffett did.  It was the wrong way to allocate $5000, because:

1)  My stock did not pay a guaranteed dividend like Warren's special preferred issue did.

2)  Shortly after Buffett bought, GE cut the common dividend by 75% - probably to help pay Buffett's preferred dividend.

3) My investment timeframe, risk tolerance, and overall objective are different than Buffett's.

Buffett is correct that GE is a good bet for the long term.  It's even a bet for people who have $3 billion to invest, and that's handy for Buffett because if he spent $3 billion on most companies he'd end up owning them. I don't have that problem, and I'd also like to get a better return than Buffett is expecting on his GE shares.

In conclusion, when you're right, you're right, and you are dead right.

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#2) On December 05, 2009 at 11:02 PM, vriguy (80.19) wrote:

You say "Good enough for Buffet is not good enough for me.   Not by a LONG shot."  and your target is 50% growth or better.

Reality check - even Buffet, perhaps the best investor ever, has not come close to 50% returns for his career - they're closer to 30%. I doubt Templeton, or Stowers, or Lynch beat 25% for their careers. If you can get 20% annually over your investing lifetime you will be one of the great investors.

It is ok to aim high, but keep your feet on the ground. BTW I don't disagree with your main point, that small investors shouldn't follow Buffet today. Good luck.

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#3) On December 09, 2009 at 10:25 AM, TMFBabo (100.00) wrote:

Buffett started his career off averaging 56% for a 6 or 7 year stretch when he invested in nano/micro caps.  I have no doubt Buffett could average 50% as a small investor, but he wouldn't stay a small investor very long (at which point his returns would again go down).

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#4) On December 16, 2009 at 12:39 PM, JaysRage (93.74) wrote:

vriguy -- that's the whole point of my blog.   

Buffet/Lynch/Templeton have it much harder than I do, because they have to manage such large portfolios.   Micros are off-limits.   Entry is simply impossible.   Small caps require finding huge numbers of quality companies in order to spread around such a large amount of money to manage.    With my small portfolio,  50% or better is my target, and I expect to meet that goal easily.    As small investors, we have huge advantages over guys that have to manage billions.  

Once I'm a large investor and I need to find places for millions, I'll gladly cross that bridge when I get there, but I'm not settling for crippled returns of large caps when I don't have to play in that market.   

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#5) On April 21, 2010 at 4:00 PM, cpate1967 (< 20) wrote:

talking about in vesting to make millions 

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Cornelius Pate 813-363-8391

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