Warren Buffett is a boss;
there’s no arguing against it.
With a net worth of nearly $58.5 billion, Buffet is widely considered one of the most successful investors of the 20th century. And being the giving philanthropist that he is–Buffett dished out five key tips to potential investors across the globe in Fortune Magazine today. (http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/)
In Buffett’s always highly-anticipated annual letter to Berkshire-Hathaway holders, he compared two of his past property investments: a 400-acre farm in Nebraska (which he paid $280k for in 1986) and a retail property near New York University that he acquired in 1993. Both of theses investments were made after prices collapsed.(http://www.businessinsider.com/warren-buffetts-investing-fundamentals-2014-2)
While discussing each of these investments, Buffett listed the following fundamentals of successful investing:
1. “You don’t need to be an expert in order to achieve satisfactory investment returns.” So investors should keep things simple.
2. “Focus on the future productivity of the asset you are considering.” No one knows whether an investment will actually be profitable in the long haul.
3. “If you instead focus on the prospective price change of a contemplated purpose, you are speculating.” Investing for the productivity of an asset and investing crossing your fingers that he asset’s price will change are two different ballgames.
4. “Games are won by played who focus on the playing field–not by those whose eyes are glued to the scoreboard.” Focus on the big picture… What will serve you well in the long run?
5. “…listening to the macro or market predictions of others are a wasted of time.” So put you TV on mute and stop scanning through Bloomberg.com.
Buffett urges investors to take these tips to heart when looking to choose the right company to toss their money to.
But with all Buffett’s success aside… John Reese at Forbes argues that we bourgeois, commoner investors actually have leg up over Buffett when making a common investment. (http://www.forbes.com/sites/investor/2014/02/19/if-only-buffett-could-buy-these-five-small-caps/)
Reese writes: “As an individual investor, you have at least one advantage over Buffett, and it’s a very big one. The advantage: Buffett is constrained by the size of his Berkshire Hathaway empire. Because the company has a market cap of nearly $300 billion and an investment portfolio of more than $90 billion, the universe of stocks from which Buffett can choose is dramatically smaller than the universe from which you and I can choose.”
Because Buffett has to be able to take a large chunk of capital from any investment he makes (due to his gargantuan portfolio), investing in small cap companies wouldn’t make a difference in Buffett’s profile.
We, however, can invest in these smaller-cap companies and reap the benefits, making our playing field a whole lot bigger and more diversified than Warren’s…an exciting and empowering notion.