i got this from Motley Fools in the email (or could it be spam)? i wonder if anybody knows if Buffett ever claimed something like that. << You must have LESS than $1 million to invest! I know, that sounds crazy. After all, the big money on Wall Street has all the advantages, right? In fact, that couldn't be further from the truth. Even for the man called the world's greatest investor. Remember, to earn 50% per year, Warren Buffett would buy small-company stocks. But here's the rub... A big player like Buffett has massive amounts of capital to put to work. It's simply not practical for him to take positions in small-cap stocks â no matter how undervalued or how much he loves the business. The same goes for most professional money managers and mutual funds. With hundreds of millions or even billions to invest, most institutions can't buy high-quality smaller stocks without 1) running up the price, and 2) buying up a controlling share of the business. This is the single most important advantage we have over the professional investors on Wall Street. That's how we are building our positions at Hidden Gems before Wall Street catches on... then once the herd does wake up, we just sit back and profit as the big money bids the stocks higher. Think it can't happen to you? It can! >>
It does not say that Buffet closed every year with 50% or more, but indeed he had quite a lot years with 50+ %. The point in your quote is that it can be an advantage to be so small that you can enter even smallcaps without moving the market. Even as a trader this can be an edge. Think about a big fund who has to liquidate a huge position. It can take them days and you can make quite nice bets with an edge on both sides.
the quote does make sense. but did buffett actuallly say that he could make 50%/yr if he had under 1M to invest? is 50% the ultimate maximum attainable via investment?
i am just trying to interpret the alleged Buttett's statement. let's assume that he did say 50%. he did not say 100 or 200%. he must have meant that 50% is all he could realistically attain year after year. because Buffett is one of the greatest investors ever, i infer that 50% is the maximal attainable gain via INVESTMENT (not via TRADING) according to BUFFETT (not according to me )
I'd suggest to anyone with <$1MM that making 50% in a year isn't difficult. A good investor/trader uses his weaknesses as strengths. in this case being small is the weakness that should be used as a strength. Many traders on here whine about not having enough money. They think that they would be able to make money easier with $10MM than they can with $10K. In reality the only reason that some of these hedge funds and legendary traders can't do 50% annually is because they have too much capital. If you are managing >$100MM there are only so many strategies that you can employ. Then their performance becomes the standard because if pros like them only do 20% annually, then anything higher must be outside the realms of reality. Simply not true. If I were to review the same trader managing 2 accounts. The first having only $100K and the 2nd having $100MM, I would be impressed with a 20% return on the $100MM fund. OTOH I wouldn't think that highly of 20% on the $100K fund.
Don't forget though that as a smaller trader you have a worst physcological edge against you. Even if your % of capital invested is the same, physcologically, it's harder to trade because you worry about drops in account value...you start with less, you fear with ending wtih less. Even if it's the same % loss in either account (a lowly funded one or a highly funded one), if you have a shit load of capital, you arn't as concerned about it because, well, you have a shit load more still, heh. But in any case, totally agree wtih what you're saying. Working as a futures analyst, we had something like 40M under management. Things flew nicely. What had to be done got done in an orderly fashion. Managing my hedge fund now, I've got a hair under $1/4B and I keep running into the same road block - I've got 101 different ideas, but end up pulling my hair out all the time because I just can't slide the amount of capital I want to into what I want w/o affecting the price movements before I'm finished taking my position. So in the end, my ideas pan out but my return is dragged down by the fact I can't be fully invested and have to sit partially in cash *sigh*
It depends on your personal finance management. If you start with your own money, you should not only have some experience (i.e. method with an edge and risk mgmt), but it helps also to have at least a 6 figures account plus enough money for 2 years living expenses (separated from your account!). Then you should be prepared to handle the psychological side easier. Things are different with OPM.