Don’t Invest Like Warren Buffett — And You Will Likely Outperform Him
Your modest sum of money is a plus in the Stock Market
Your modest sum of money is a plus in the Stock Market
A commenter highlighted that my good investing record owed much to how little I was investing. I agree. It’s easier to invest $5,000 than $5 billion.
So, I use that to my advantage and invest accordingly — simply copying Buffett’s trades burdens me with his limitations. He has to make good returns on billions of dollars while the whole world watches.
You, on the other hand, don’t have that dilemma. You don’t have billions burning a hole in your pocket. Buffet said, “if he were working with a small sum, he would be doing entirely different things”.
Here are the reasons why Buffett would say this.
1. The World Is Your Oyster
Significant sums of money limit your investing choices. A look at Buffet’s portfolio shows him invested in large-cap companies like Apple, Bank of America and Coca-Cola. It’s not by choice, though. Massive growth in small to mid-cap companies barely make a dent in his $260 billion stock portfolio.
However, that same growth will supercharge your modest stock portfolio. So, don’t limit yourself to only big-cap companies. Include some exceptional small to mid-cap companies in your diversified stock portfolio. Don’t make the mistake of waiting for companies like Tesla to be included in the S&P500 before investing.
2. In the driver’s seat
You have no competitors to keep you up all night with worry. Your performance in the stock market has no benchmark. No-one will fire you if you fail to beat the S&P 500 average market return.
It’s a luxury Buffett doesn’t have — he must prove himself always. He is only as good as his last quarter.
This focus on beating the market inhibits experimentation and leads to Coattail investing — copying well-known successful investors’ trades. You won’t beat Buffett by trying to emulate him. The best you can do is match his results with this approach.
3. You did what with my money
Berkshire Hathaway shareholder meetings are famous — with yearly attendance over 40,000. People come to see and hear Buffett, but he still needs to tread carefully.
He is investing other peoples money, which makes him answerable to them. Each year Buffett must justify his investing approach to shareholders. This must affect his daily investing decisions, even if subconsciously. No-one wants to lose other people’s money.
On your side, you only have one shareholder, yourself. You are not answerable to anyone for your investing decisions — allowing you the freedom to experiment, fail, learn and improve on the go.
Remember, investing is not only for the super-rich. It’s also for the aspiring rich making there way in the world. When it comes to the stock market, the aspiring rich have a massive advantage — more investing choice, no competitors, and no-one to please but themselves.