Small Money Investors – Don’t Invest like Warren Buffett
Posted on | November 5, 2009 | No Comments
I should clarify this statement. When I say don’t invest like Warren Buffett, I mean don’t invest like Buffett does now. We can look at this in two parts.
His recent deal to purchase all the remaining shares of Burlington Northern (BNI) is not what any value investor would do. Not only did he buy it, but he bought for what in my analysis amounts to a price above intrinsic value. Why would he do that? Buffett may be the greatest investor of all time but he has Gi-normous amounts of capital to deploy. This limits his options for him. He needs the deals to be very big. Million dollar investments don’t move the needle for him any more. He has famously complained about it before, particularly when he is sitting on large amounts of cash. There are a couple of reasons Warren can do what he does and we shouldn’t. First, we are not limited by huge amounts of capital. For most of us, with small amounts of money to invest, multi-thousand dollar investments move the needle just fine. Second, when you buy a whole business you can affect the business in ways that individual shareholders can not. We can not shape management or streamline operations, Buffett can.
The second part is that we should try to invest like Buffett did in his early days, when he ran the equivalent of a hedge fund and thought like Ben Graham. He was not the buy and hold forever investor he has become. He was a buy at a discount to intrinsic value investor. And he would sell, either when a better deal came along or he had taken the last puff of the proverbial cigar butt. The thing to remember both for beginning investors and small money investors is that we have an edge, but it is not the edge that Buffett has. We have a better edge than he does, because we can invest in companies that are too small for the Buffett’s of the world.
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