Buffett Sits on US$100 Billion — Time to Buy Small-Cap Stocks

The world’s greatest investor is close to sitting on US$100 billion in cash. It’s a milestone Warren Buffett wishes he would never see. The problem is, as Buffett’s investment company, Berkshire Hathaway [NYSE:BRK] grows, so too does his problem. The problem of having too much cash.

US$100 billion is an amazingly large sum to invest. It restricts you to trading the largest, most liquid companies in the world. The problem is, these are also the most watched companies bought by various investors. It’s hard to get any kind of advantage over the market.

Luckily, you don’t have that problem. As an individual investor investing thousands, you can invest in the biggest and smallest stocks on the ASX. Having this ability is a huge head start on generating high returns.

I’m not trying to say that smaller companies will always yield higher returns than blue chips. However, having the ability to invest in lesser known, smaller stocks can give you an edge over institutional investors who are restricted to the biggest 500 companies.

Even Buffett acknowledges that size limits your returns. He said in a Businessweek interview in 1999:

‘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.

If you want to check out the top three small-caps trading on the ASX right now, click here.


Härje Ronngard,

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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