Buffet's 50% per year

[Denistry]

Hi all, I am new here but I have been reading up on value investing for a long time. I read somewhere that Buffet said that he can attain 50% per year of returns if he is managing a small amount of money. Knowing that he has several investment strategies ; eg, looking for cheap companies, M&A, looking for companies with economic moats, I seriously can't figure out which strategy is he referring to when he made that statement, or maybe its a combination of different strategies? what do you guys think?

[no_free_lunch]

There was a thread on this same topic a while back.  If you search in google you can probably find it.

[Denistry]

ok thanks :) i will check it out

[gfp]

The gist was that he would turn over a ton of stones looking for a few obscure, likely very tiny, opportunities that others were missing.  He used to love extremely obscure, little known microcap companies.  Someone at tweedy, I believe, once remarked that you don't get extra points for obscurity - that's how focused he was on the off-the-beaten path hiding spots.  And obviously he would occasionally take activist sort of action to separate a cash/securities portfolio from an operating business or whatever was needed if management didn't take his hints from the outside.  But basically, go through the stock manuals page by page.

 

The opportunity has passed, but leveraged arbitrage (which he called 'work-outs' generally, and Charlie called 'jewish treasury bonds') was also a big activity for them at that age.  Charlie has mentioned that there are many more players in that space these days and spreads tend to contract quickly.  Even so, there have been arb opportunities discussed on this board that were illiquid, obscure, likely to close, and very profitable.  Warren would leverage these and the annualized returns with leverage were very very high.

 

That's why he always comes back to "small sums" when making these types of boasts.  With several hundred million of personal funds to invest, he owns WFC, JPM, SRG, Cash, other stocks I'm not aware of. 

[augustabound]

I googled for the comment and found this blog post (among others). From a 1993 talk to MBA students.

https://valuebin.wordpress.com/2011/01/27/warren-buffett-on-investing-small-sums-of-money/

If you were today 20-something years old would you primarily be searching for: a) Situations reminiscent of 1957 –– akin to Daehan Flour Mills, or b) Situations reminiscent of 1987 –– akin to Moody’’s Corporation?

 

Either is fine. a) is better for small sums. b) is better for large sums

 

[Mr. Buffett, on June 23, 1999 you shared with Business Week:

 

If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. 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 think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.]

 

[bookie71]

here's one  thread

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/micro-caps-and-buffett's-gt50-returns/msg104503/#msg104503

[bennycx]

Why doesn't Buffet just show (for fun) that he can make 50%+ for a couple of years by putting aside another account with only $10k, just to put the nail in the coffin

[AzCactus]

He wouldn't earn 50% a year for any remotely sustained period of time (at least without tons of leverage).  In Charlie Munger talk this is pure twaddle.  He manages billions and he's a great investor so we assume he would earn 50%.  His results were obviously fantastic but he would be WAY richer if he compounded at 50% per year.  The rate that his net worth compounded and the result that is LP's received are two completely different figures. 

[Guest roark33]

He invested in SRG almost two years ago.  I may be off on my eye-ball estimates, but I am pretty sure that hasn't compounded 50% per year for the past two years.... ;)

[scorpioncapital]

Sometimes it feels like that that quote was a boast. Or maybe he wasn't talking about the public markets.

Did even his partnership get 50% per year? I don't think so. It was high but not 50% per year.

Maybe 1 year. Or maybe he meant really really small.

I mean is it really exciting if I have $1 and find $1 on the street? That's technically 100% on small sums.

 

[T-bone1]

I think he has specifically stated (more recently) that it would not necessarily be in the public markets. I know a number of members of this board who have been generating >50% returns on capital they have been investing in less liquid areas (real estate, resources, small businesses, etc.)

 

Sometimes it feels like that that quote was a boast. Or maybe he wasn't talking about the public markets.

Did even his partnership get 50% per year? I don't think so. It was high but not 50% per year.

Maybe 1 year. Or maybe he meant really really small.

I mean is it really exciting if I have $1 and find $1 on the street? That's technically 100% on small sums.

[Jurgis]

There was a newer (2016) long thread on this which I cannot find (crappy search or crappy searcher).

 

People also asked Munger what Buffett meant and Munger confirmed that he indeed meant that he could do 50% annual with ~100M sums. Can't find that either offhand.

 

At the end of the day, if you cannot do 50% per year, find another job...

 

 

 

Just kidding.  ;D

 

Actually, git good or find another job.

 

 

8)

 

Or just charge 2/20 and sell dreams to suckers investors.

 

 

Still kidding. Mostly.  8)

[Spekulatius]

I feel in some cases, people put too much into a simple quip like this 50%/year, which I doubt is doable consistently. I think the point is that a nimble manager can make much higher returns with small sums of money than with large sums. I think this is all to it. There is no reason to hang onto each word from the masters like it is a hidden wisdom.

[CassiusKing1]

I mean is it really exciting if I have $1 and find $1 on the street? That's technically 100% on small sums.

This ties directly into his investing philosophy of finding lots of 1 foot hurdles and staying away from the 10 foot hurdles.

[netnet]

There was a newer (2016) long thread on this which I cannot find (crappy search or crappy searcher).

 

People also asked Munger what Buffett meant and Munger confirmed that he indeed meant that he could do 50% annual with ~100M sums. Can't find that either offhand.

 

Here is another instance of this discussion

http://www.cornerofberkshireandfairfax.ca/forum/strategies/buffett's-50-per-year-on-small-sums/

 

[rukawa]

People also asked Munger what Buffett meant and Munger confirmed that he indeed meant that he could do 50% annual with ~100M sums. Can't find that either offhand.

 

You mean with 1m sums. Buffett already had the chance to get 50% a year with 100m sums and he failed completely so this is surely an impossibility even for him.

[Liberty]

Early Buffett wasn't as good as later Buffett, he was still learning. So logically we could expect later Buffett with early Buffett's AUM to do better.

 

Greenblatt did 50% CAGR for a decade. I think it's not impossible that Buffett could do the same. Obviously this need to be adjusted for the context of when the comment was made; maybe with much lower interest rates you'd expect lower returns. But still, I think he could do very high numbers and he wasn't just boasting.

 

Didn't he generate hundreds of millions in his PA while barely trying at all and not touching things BRK could want?