The Oracle of Omaha got out of personal investing as
fast as he could. Follow this logic and you could become a supreme
success too.
Creative Commons
Warren Buffett and Alice Schroeder, author of The Snowball.
It's hard to believe that so many personal investors
swear by Warren Buffett's stock-picking methods. Why? Because when you
look back at Buffett's early career, none of his best and biggest moves
required placing stock market bets with his own money.
The secret to Warren Buffett's wealth is that he works
like an entrepreneur. Sure, he uses the principles of value-investing to
identify companies to invest in. But then he extracts wealth from those
companies by pulling off entrepreneurial deals and executing on complex
boardroom strategies.
If Buffett were a little more forthcoming, he just
might cite the following reasons why you should stop trying to get rich
by value investing your own money:
1. You don't have enough capital.
When Buffett was in his mid-20s, he tried
investing his own money and found it incredibly frustrating. He'd invest
all his holdings in stocks he'd identified through Benjamin Graham's
buy-low-sell-high value-investing philosophies. But once those
under-the-radar stocks started picking up steam, Buffett would discover
some other undervalued stock that was much more promising. With his cash
all tied up, he continually faced the miserable choice of either
selling one stock before its value had peaked or letting a great
opportunity pass by. Buffett came to realize he'd never get anywhere
this way, and he reluctantly raised money from other people through
investment partnerships so he could get his hands on more capital. In a
sense, Buffett didn't start getting rich until he quit doing what most
personal investors now regard as "investing the Warren Buffett way"!
2. You're risking what little capital you have.
Buffett was kind of a shy guy, and he didn't
like the process of fundraising required to get his hands on other
people's money. But he also recognized that other people's money would
enable him to play a game called "heads I win, tails I don't lose."
Under the rules of his early investment partnerships, Buffett enjoyed a
big percentage of the gains if his stock-picking was good, and very
limited losses if his stock-picking was bad. When people ask Buffett
about his worst investment, he always points to his very first at age
21. It was a "heads-I-win-tails-I-lose" deal in which he lost everything
on a failed gas station. Warren Buffett hasn't used his own money to go
"all-in" on a deal since.
