Warren Buffett on How He’d Invest Small Sums of Money

Posted on Posted in Portfolio Management, Superinvestors, Warren Buffett

Warren Buffett has spent the last few decades looking to buy either entire businesses, or major positions in large cap stocks of great businesses. He looks to buy these businesses at low prices of course, but often times he pays a price that leave many value investors scratching their heads (i.e. paying over 20 times earnings for Heinz, and 20% more than the stock’s all time high). Much of the reasoning behind these types of investments has to do with the gigantic capital base that Buffett has to deploy. Buffett is forced to make huge investments in order to make a meaningful impact to Berkshire’s book value. But this wasn’t always the case…

What if Buffett had only a small amount of money? How would he invest say $1 million? He confidently once said that he could consistently make 50% per year on $1 million or less of capital. (In fact, he made 60% per year for 5 or 6 years investing his own capital in the early 50’s).

It’s always interesting to think about how Buffett would invest small sums (sums that are similar in size to what we mere mortals have to invest). I think about that question often. I came across this short 3 minute video where Buffett answers the question on how he’d invest a  (relatively) small amount of money.

He says he’d do far better percentage wise (that’s obvious), and he says he’d love to buy good businesses, but he says he’d comb through lists of cheap stocks, and he’d likely find a lot of opportunities.

Here’s how Buffett answered the question: How would you invest small sums of money?

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