How You Can Have An Advantage Over Warren Buffett

You would be hard pressed to find many investors who have a better long term track record than Warren Buffett. He is the Chairman and Chief Executive Officer of Berkshire Hathaway Inc. and is widely viewed as one of the most successful investors in history after helping Berkshire achieve a compounded annual growth rate of 20% in its book value over close to 50 years.

Despite his outlandish performance, there is one advantage that a small investor has which Buffett is actually envious of.

Berkshire’s portfolio is bigger than yours

In an interview with Businessweek in 1999, Buffett lamented on the size of Berkshire Hathaway’s portfolio, and how it affected the universe of companies which he was able to invest in:

“The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. 

I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.”

As of the end of the first half of 2014, the portfolio which Buffett manages stood at a massive US$116 billion. With this in mind, the universe of companies which Buffett is able to consider for investment could be in the range of eleven to twelve figures — or what he refers to as “elephants” by market capitalization.

Buffett mused that he was not able to consider smaller companies (“mosquitoes”) even though it may represent better opportunities. This was because the smaller companies would not be able to move the needle compared to the size of Berkshire’s portfolio.

At the local front, it is unlikely that a company of the size of Raffles Medical Group Ltd. (SGX:R01) would move the needle for Berkshire’s portfolio. Raffles Medical is a health-care services provider and its market cap stood at S$2.2 billion as of last Friday (25 October 2014).

It is also one of Singapore’s best shares over the past decade.

Said another way, the small investor in Singapore had the opportunity to invest in one of Singapore’s best shares, but an investing maestro like Buffett would have to pass on this.

Foolish Take away

Foolish investors can take heart from this lament from Buffett. We may feel that our own investable cash is not a huge sum of money, but Buffett reminds us that it is about investing it well rather than the size of our portfolio that matters. In other words, as my colleague Stanley duly noted, if individual investors can persist over the long term, they might just themselves arriving at retirement with a satisfying pot of money.  For more free investing tips, sign up now for a FREE subscription to The Motley Fool’s weekly investing newsletter Take Stock Singapore. 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Berkshire Hathaway.