Buffett: I could make you 50% a year on $1 million

**Value-Investing-Forum** Sat Feb 18, 2006 2:11 am

Buffett: I could make you 50% a year on $1 million
Warren Buffett said in an interview:

"it's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."

Warren Buffett also advised individual investors:

"Follow Graham and you'll be fine."

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**nodoodahs** Sat Feb 18, 2006 7:34 am

This article emphasizes the point of my rant. WB wouldn't be buying, or owning, what he does today if he had to start over with $1 million. He would be buying and owning totally different stuff. Therefore it is stupid for a "value" investor with limited resources to follow WB's current holdings or purchases, or buy things because WB just bought them - because the only reason WB bought them is the constraints that large amounts of capital place on him.

**blast_investor** Sat Feb 18, 2006 8:47 am

To be fair to Warren, everybody knows he is student of Ben Graham, everybody knows that Warren got rich because he learned the trick from Graham to be rich.

Therefore, it is not too surprising that Buffet emphasized pure "Graham" method in his talk.

In the end, "Graham" method is his Buffet method. That was the way he got rich initially. That is not "different" method although he has not been able to use exact same method recently because of size problem.

**nodoodahs** Sun Feb 19, 2006 12:27 pm

blast_investor wrote: ...he has not been able to use exact same method recently because of size problem. Exactly my point. He can't do it now because of size. Therefore, any current "value" investor with less than several billion dollars to invest would be foolish to study, track, or buy any of WB's current buys or holdings. Better to apply his principles than to follow his portfolio.

BUD and KO are not in top 1/3 of S&P 500 index stocks in terms of PE, Forward PE, PB, or PS. Matter of fact, BUD and KO are in the bottom half of the S&P 500 index in most of those measures.

**blast_investor** Mon Feb 20, 2006 12:34 pm

We are in perfect agreement.

Those who follow current Buffet portfolio will be fine, most likely the performance is going to beat SP&500 index. But if one wants more than that, then he/she needs to read this Warren Buffett's interview carefully.

Warren clearly said "Follow Graham, you will be fine.".

nodoodahs wrote: Exactly my point. He can't do it now because of size. Therefore, any current "value" investor with less than several billion dollars to invest would be foolish to study, track, or buy any of WB's current buys or holdings. Better to apply his principles than to follow his portfolio.

**05malibu** Mon May 01, 2006 8:52 pm

Could Buffett really find stocks that he could gaurentee will appreciate 50% in a year? Wouldn't think make him a little supernatural?

**RT Wolf** Tue May 02, 2006 12:39 pm

Yes. There's a reason Buffett is the finest investor ever, because he is nigh-supernatural.

He would make those kind of returns in stocks which are ridiculously undervalued or have huge assets that everyone has overlooked because they're so tiny. For example, I know of a tiny cap (trades otc), where the shares are selling for about 6 dollars and it has 9 dollars in cash alone. If the stock price appreciates to 9 dollars from 6 dollars, that's a 50% gain. There are other issues that make me wary of purchasing it, however. If I had more capital, I'd buy some shares of it.

That's one of the reasons I'm fond of putting in a 1 million minimum in the Magic Formula thing because I like smaller companies. Zenex is a company that was on there and has doubled since I found it two or three months ago, unfortunately I didn't buy any shares. Zenex is still on the list so it might still be a good value.

Purchasing small stocks comes with its own set of risks, however. PK or OTC stocks don't have exacting standards for financial data reporting. You have to make sure you're not looking at a company that doesn't exist or is a stock scam. There was a "stock pick" posted in the stock picks section that smells like a stock scam to me. Then you have to make sure that there is commited management and they can handle the competition. You have to make sure you understand its playing field and its competition.

Hopefully I'll be able to clock in 50% a year. ;)

**blast_investor** Tue May 02, 2006 2:40 pm

Hi 05malibu,

I would not call Buffet as "supernatural". But I firmly believe in Buffet words in his 50% claim.

In the past 5 years, we have done it with similar approach. Although our performance is below Buffet's 50% benchmark, but we did it at around average 40% annual return. We did it with unknown micro cap, small cap stocks such as ADGO (OTC), NEWRZ (NEN) etc low float stocks. Take NEN as example, our entry price was around $30 a share and the real estate net asset NEN held in Boston was worth $60 to $100 per share. NEN/NEWRZ was a small cap low float stock at average 100 to 1000 share trading volume that few investors dared to invest. But we bought at $30 and sold at $80 to $90 a share 2 years later.

It is hard to believe this "50%" claim. Particularly most of Wall Street mutual funds right now can hardly beat S&P 500 index and economic professors are screaming that nobody can beat market. In current market, any average annual performance above 10% would beat S&P500 index in our opinion.

Sure, small value investors with small amount of money can beat index and beat most of Wall Street mutual funds, and can achieve some-what "super-natural" performance like Buffet did decades ago.

Actually, the method was not even invented by Buffet. Buffet simply piggybacked his mentor Ben Graham when he was young in 1950's.

**05malibu** Wed May 03, 2006 9:26 pm

Okay. Clearly, this is what I have been looking for simce I became interested in investing, and hopefully this is where someone here will throw me a nugget. How do I go about finding those companies selling for $3 a share and earning $20 per share. Are they listed on the exchanges? Pink Sheet, OTC? Can I screen them using MSN? Value Line? By the time they make it on the radiar it is probably too late.

Blast Investor, does your site offer subscriptions so we can get your portfolio?

**blast_investor** Thu May 04, 2006 12:20 am

Hi 05malibu,

Yes, you can get 30 days free trial for my newsletter at:
http://www.blastinvest.com/RT_Plus.htm

For those obscure picks, you would be pretty much have to find yourself like Buffet said, or get a newsletter like mine. It is not so easy to get them, but it can be done.

My free article below might help you to get there if you want to do yourself:

My Top 5 Stock Pick Sources for 2005

05malibu wrote: Blast Investor, does your site offer subscriptions so we can get your portfolio?

**cdnpatriot** Sat Jun 30, 2007 4:59 pm

I think that statement may be taken out of context. Buffett wasn't always a strict disciple of value investing and Benjamin Graham. In fact at first he was heavily involved with risk arbitrage situations. What he meant was that he and Charlie could easily make that money a year on risk arbitrage alone but of course when you are dealing with billions this is not possible.

**blast_investor** Sun Jul 01, 2007 11:02 pm

risk arbitrage situation was mentioned in Ben Graham's book Intelligent Investor. Ben Graham himself did lots of risk arbitrage investment before in his times.

In my opinion, proper use of risk arbitrage investment is inherent part of value investing discipline. One way or the other value investing uses some degree of arbitrage concept in the investment approach so that I would not seperate out arbitrage special situations out of value investing.

Practically, Joel Greenblatt is well known present time famous value investor who engaged in lots of arbitrage special operations in the past and wrote a book on this topic.