It is a huge structural advantage not to have a lot of money

It is a huge structural advantage not to have a lot of money

Warren Buffett’s Berkshire Hathaway has returned an astounding 3,641,614% since its inception in 1965.

These results speak for themselves. By comparison, the S&P 500 has returned 30,209% over the same time frame. A single dollar invested in Berkshire Hathaway in 1965 would have turned into $36,714, while the same dollar invested in the S&P 500 would have returned just $303.

But even Buffett is not immune to the law of large numbers. The bigger something gets, the harder it is to keep growing exponentially. Berkshire Hathaway has managed to double its stock price twice in a year exactly twice – both times were back in the 1970s.

As Buffett put it a decade ago, “The highest rates of return I ever achieved were in the 1950s. I killed the Dow. You have to see the numbers. But then I was investing in peanuts. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee it.”

Why is Buffett jealous of you?

But it is more than just the law of large numbers working against the Oracle of Omaha today. Buffett – and every other billionaire investor and institutional player – is effectively barred from investing in the most explosive opportunities in any meaningful way.

Let’s say Buffett wanted to invest in a $1 million small-cap company. He could legitimately invest a few thousand dollars and hopefully watch it grow to $100,000 or more.

But that would be a pittance for Berkshire Hathaway, which is a juggernaut valued in the hundreds of billions of dollars today. A house with a small investment won’t move the needle for Buffett.

His other option would be to invest much more – say $500,000. But then he would own so much of the company that he would need to file a Schedule 13D form with the Securities and Exchange Commission and deal with the headaches that come with being what is legally known as a “beneficial owner.”

Buffett will continue to collect hundreds of millions of dollars a year in dividends from the vast amount of stock he owns in household names such as Coca-Cola Co. (NYSE: KO), Apple Inc. (NASDAQ: AAPL ) and Bank of America Corp. (NYSE: BAC).

But it won’t score another 10,000%-plus winner like it did with GEICO insurance stock in the 1950s and 1960s.

Benzinga is eyeing a number of opportunities that are essentially closed to investors like Buffett.

After all, small-cap stocks, despite volatility and increased risk, have historically outperformed their larger siblings over time. Small investors should know this – and be ready to take advantage of their one big advantage over Buffett.

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