Warren Buffett's Disadvantage
Warren Buffett has an investment problem...
He's one of the richest men in the world. And he doesn't just invest with his famed holding company Berkshire Hathaway (BRK-B). Any signal from Buffett moves markets.
Today, Berkshire is worth $875 billion. But that success comes at a cost. Buffett has stated on multiple occasions that managing large sums of money can be a performance disadvantage... Even if an investment in a small company goes well, it won't meaningfully improve a massive portfolio's overall performance.
Most successful investors have taken something from Buffett over the years, most notably his advice of buying great businesses at fair prices and holding them for the long term. Given Berkshire's size, Buffett keeps his eyes on giants like Apple (AAPL) and Visa (V).
In 1999, he famously said that if he were managing only a million dollars instead of billions, he could guarantee a 50% return annually. And that's because there are simply more stocks to choose from that don't get much analyst attention. There's also less worry about broader market impact when investing.
Then again, a 50% return on $1 million is $500,000. Buffett can't waste his time on $500,000.
But us average investors can. And that's why you should be thinking small...
The numbers back up Buffett's boast. Small-cap investing is indeed more profitable than large-cap investing. When you look over a 15-year time period, for example, small caps outperform large caps 90% of the time.
Despite the potential for attractive returns, small-cap stocks have been forgotten about. In fact, they haven't been this hated in decades... And that means every investor needs to get some exposure today.
While you could just buy a small-cap ETF, the biggest gains come from handpicking the most promising small-cap names.
Fortunately, my colleague Marc Chaikin is using his decades of experience on Wall Street to help subscribers profit from small-cap names. If you haven't seen Marc's latest presentation on why you need to own small-cap stocks today, I suggest you do so.
Be sure to check it out here before it goes offline.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
July 6, 2024
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