How You Can Use Warren Buffett’s ‘Second Mover’ Investment Strategy

warren buffett investing strategy

Two years after the Californian gold rush, Eddie and a fella named Lister ventured to NSW.

The two men made their way to Bathurst, an area Eddie believed was rich with the yellow metal. Using skills he picked up in California, Eddie panned through wet gravel for months.

Then finally, ‘There it is!’ he shouted to Lister.

I will be a baronet, you will be knighted and my old horse will be stuffed and put into a glass case and sent to the British Museum.

None of it ever came true, but Eddie’s find was significant for the time. Word spread and soon everyone, even the doctors and lawyers, ventured out for riches.

History Today writes:

The local paper, the Bathurst Free Press, prophesied “a complete social revolution” in Australia, and was not so far wrong. By May, half of Sydney seemed to have left for the goldfields and there was a sensation in July when the Kerr Nugget was found, a whole hundredweight of gold.

Soon the whole of Australia caught gold fever. Riches were first come first serve. And nobody wanted to miss out.

Racing to riches

Being first can be a huge advantage. We even have a term for it: first mover advantage.

Businesses that are first to market enjoy an initial boom, and that’s because they are the only ones selling X or Y. For a short time, they effectively become a monopoly and punish consumers with high prices.

If management is smart, they’ll come up with a way to hold their dominant share, even as competitors come in. The iPhone comes to mind.

OK, so it wasn’t the first mobile phone ever. But it was the first of its kind. The 2007 iPhone changed how designers think and the usability of all smartphones today.

Today, Apple, Inc. [NASDAQ:AAPL] continues to sell the majority of smartphones in the US, even after a swath of competitors have come in.

Being first can also be important (many believe it’s a must) in the investing world. Who wants to be late on one of the biggest stock trends of 2019?

I’m guessing not you, or any one of the million other Aussie investors.

It’s why the majority is always looking for the next big thing. They want to buy it before everyone else.

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A great example was bitcoin mania last year. No one quit their jobs to buy and sell bitcoin. Although I wouldn’t be surprised if a few did.

Each week, you saw bitcoin hit new highs. Anyone who bought bitcoin, smart and determined or dumb and lazy, was making money regardless. For most, watching from the sidelines was too tough. They wanted their own ticket to riches, a ticket that was only worth anything if they bought in before the ‘big money’.

We’re still waiting for that ‘big money’ move. And in all honesty my guess as to when is probably as good as yours.

If you want to learn more about this space you can pick up Sam Volkering’s latest book: Crypto Revolution. Many are calling it the crypto bible, sure to get you ready for what happens next.

But first is not the only way to make a buck. It’s a great position to be in, don’t get me wrong. If you can catch onto something great, then it’s the best position to be in.

Yet, second isn’t all that bad either.

Buffett making billions from Apple stock

Are you still buying Apple stock?

Just a little,’ Warren Buffett said in an August CNBC interview. ‘Hundreds and hundreds and hundreds of millions of people practically live their lives by it (iPhone),’ Buffett added.  

If you look at that little piece of whatever it is, that is some of the most valuable real estate in the world. Fifth Avenue will never come close to that.

You’ve got hundreds and hundreds and hundreds of millions of people with loads of buying power and able to do business, learn information or whatever it may be. It’s part of their habit of living.

That real estate is worth a fortune.

This probably isn’t news to most of you. In fact, you probably knew smartphones and iPhones in particular were going to be extremely important far before Buffett caught onto the same idea.

It almost seems that Buffett is trying to describe something everyone already knows. He’s very late to the smartphone wave, but he’s also generating billions from it.

I think it’s a great example of how you can profit from obvious trends. Being second means you have the luxury of investing with a whole lot more certainty.

Instead of buying Apple in the 1980s, when their future was uncertain, you can buy the stock today and bet on their continual success.

OK, so you’re not going to make 10-times your money on a stock like Apple in the near future. If you’re seeking fast returns in high risk, high potential small-cap stocks, check out this opportunity.

The big advantage of this ‘wait and see’ strategy is that it leads to far fewer losses. Sure Apple could drop tomorrow. Sales might fluctuate. But everyone isn’t going to stop buying Apple products tomorrow.

In fact, it’s far more likely they’ll continue buying more and more, adding to Apple’s ecosystem. That means you can really only lose money on a stock like Apple if you buy at a highly inflated price.

Like I said, maybe this isn’t for you. Maybe you’re playing this game for 10-times returns. The kind that you could find with speculative investments in the newest investment megatrends. But if certainty is your game, don’t bother being first.

Sit back, find out what works and then load up your bets.

Your friend,

Harje Ronngard,
Editor, Money Morning

PS: If you want to lay down a little money on the hottest corner of the ASX right now…but you don’t know your way around the small-cap sector…this report is for you. Get access now (free).

Harje Ronngard

Harje Ronngard

Harje Ronngard is the lead Editor at Money Morning. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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