How Investing in Small Companies Can Result in Huge Gains

Scale isn’t all that important.

That’s what Warren Buffett told students at the University of Georgia.

It’s a bit rich coming from one of the richest men in the world. He literally has hundreds of billions at his disposal. Yet it’s because of his company’s sheer size that Warren has few options available.

It’s why he’s recently been buying the largest stock in the US market: Apple, Inc. [NASDAQ:AAPL].

Apple probably isn’t the best stock to buy. But for Warren, who has to move billions of dollars, it’s the best of a limited universe.

I’ll bet if Warren had his way, he’d be working with far less cash. With only a few million, his investing universe would open up dramatically.

Even in business (most of the time) scale isn’t the winning factor.

Yes, huge volumes can lead to efficiency, giving one company an advantage over all others.

But even the small competitor can trump the billion dollar behemoth.

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Why small businesses have an advantage

In many areas small businesses have an advantage,’ Warren told students.

Consider Walmart, the multibillion dollar US retailer. More than 30 years ago, Sam Walton founded Walmart in Bentonville Arkansas.

Yet he was competing with the biggest name in the game: Sears.

Here was Sears with a hundred story plus building in Chicago. They had access to money far cheaper than Sam Walton. Every supplier wanted to do business with Sear. Nobody had ever heard of Sam.

Every real estate developer developing a new shopping centre went first to Sears and Sam got the short end. So here’s a guy starting in Bentonville Arkansas, and he kills them over time. Just plain kills them.

Walmart had a disadvantage in buying, a disadvantage in borrowing, and a disadvantage in real estate.

But they did have one advantage: Sam Walton.

He had an ability to inspire hundreds of thousands of people to be enthusiastic about their jobs and to do the right things over time, Warren said.

It was the same for companies like Apple, Amazon and Facebook.

All three were started with little to nothing. But over time, by doing a few things extremely well, they killed the competition. And today, they’re all billion-dollar behemoths.

While it’s easy to cherry pick, does this also work in an anticompetitive industry like pharmaceuticals?

According to Bloomberg, tiny biotech Eidos Therapeutics Inc. is planning to take on Pfizer, Inc., the US$240 billion US pharma:

A small-cap biotechnology firm that took part in ared-hotsummer for going public thinks its lead drug can compete with industry heavy-weights likePfizer Inc.

Eidos Therapeutics set to release results from a mid-stage study of its drug for a rare, deadly disease in coming months. Investors will be looking for good news: shares dropped some 30 percent since just after going public less than two months ago.

The condition, characterized by the build-up of abnormal deposits of a protein called amyloid in the body’s organs and tissues, is wildly under diagnosed,Chief Financial Officer Christine Siu said in an interview at Bloomberg’s New York headquarters on Aug. 3. This is a huge and growing market with new advances and diagnostic techniques that make it large enough for multiple entrants.

Results may be a couple of months away, but investors will get a key look at full data for Pfizer’stafamidis on Aug. 27 at the European Society of Cardiology Congress 2018 in Munich, Germany. Pfizer has said the drug has significantly helped patients with transthyretin cardiomyopathy, and the data will offer a read-through to Eidos’s AG10 given the compounds’ similarities.

But it’s not just Eidos taking on the big boys.

Another small US biotech is quickly developing technology that may not just end cancer, but all human diseases.

Doctors are calling it a Living Drug. And it could be your ticket to gains of 2,422%.

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This tiny biotech could trump billion dollar pharmacies?

For the longest time, patients suffering with cancer in its latest stages have had no hope.

But just last year, that changed. Two huge pharmas have brought therapies to market that actually super charge your immunity.

Their drugs give your immune system the power to locate and destroy cancer.

And in the background is this tiny US biotech. But I don’t expect them to stay there for long.

They’ve already shown extremely promising results through trials. And they could potentially receive regulatory approval in the months ahead.

If this tiny stock can get their living drug to market, they’ll not only save countless lives, they could be one of the BIGGEST winners you come across this decade!

Your friend,

Harje Ronngard,
Editor, 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.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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