Stewart Horejsi was running the family business in 1980.
The welding company had been in the family for 50 years. And time had taken its toll.
Prices steadily declined. Horejsi was losing market with no way to plug the holes. Why not use the cash still in the business for something else, he thought.
Around the same time, Horejsi had read a memorable book: The Money Masters.
The book profiled nine great investors. The one that caught Stewart’s eye was Warren Buffett.
At the time, Buffett had made his way onto the Forbes 400 list, with a net worth of US$250 million.
Impressed by his success, Horejsi started buying Berkshire Hathaway Inc. [NYSE:BRK] stock. MicroCapClub’s Ian Cassel writes:
‘…he took some cash and bought 40 shares of Berkshire Hathaway at $265. Two weeks later he bought 60 shares at $295. A month later he bought 200 shares at $330 per share.
‘He went to the annual meetings when there were less than a dozen people in attendance. He actually made his friends go too because he was worried the company would stop having them because attendance was so low.’
Today, Horejsi owns 4,300 Berkshire Class A stock.
He’s worth US$1.4 billion.
All it takes is one investment.
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You just gotta have faith, faith, faith
OK, so Horejsi is the extreme case.
There aren’t too many Berkshire Hathaways floating around.
The fact that Horejsi continued to hold onto his Berkshire stock when it was worth a million or more is a miracle to me. Most investors might have sold after the first few thousand dollars.
Truth is for every Horejsi story, there are a thousand others where investors lose everything.
While all it might take is one great investment, getting to that one is often a road paved with losses.
And that’s the risk you take.
If you want to hit it big and make a fortune over time, you need to accept that your bets won’t always be winners.
I’m sure Horejsi’s faith was tested at times.
While Berkshire’s Class A stock looks like a straight line up and to the right, there were times when the world’s most boring conglomerate dropped significantly.
From April 1999 to March 2000, Horejsi saw his holdings tumble 45%. They took another 51% dive from December 2007 to March 2009.
Through it all Horejsi held on, and he was rewarded for his conviction.
Again, there aren’t too many Warren Buffetts floating around. I doubt any shareholder has more faith in management than those of Berkshire.
But if you did want to start looking for that one great investment, where might you start?
How to find that one investment
There are generally two ways you can replicate (to a lesser extent) Horejsi’s results.
The first is to do what Horejsi did. Research and make a bet on a wonderful company.
Horejsi was essentially making a bet on Buffett. He was betting Warren would continue doing what he was doing — making money when opportunities presented themselves.
It might be a little more difficult to pull off such a bet today. And it’s because most of the wonderful companies are already wonderful companies.
And because they’re wonderful companies, people pay hefty prices for them.
Everyone knows Amazon.com, Inc. [NASDAQ:AMZN] and Microsoft Corporation [NASDAQ:MSFT] are great companies.
It’s why they’re so expensive.
And because they’re expensive, the future potential returns — at these prices — are limited.
To generate the same, or even a quarter of what Horejsi generated, you’d likely need to buy the wonderful company before it’s ever wonderful.
There might be big unknowns about the company. And to achieve extraordinary results, you’ll have to take a leap of faith, much like Horejsi did on Buffett.
This is not to say you should start ploughing all your money into speculative microcaps. You can put a little bit of money aside, call it play money, and take calculated bets on tiny stocks. Just don’t bet the farm.
The second path to extraordinary results is to buy good (not necessarily wonderful) companies that have problems. And by problems, I mean really hairy ones.
You want to buy good companies when pessimism is at its peak. So even though everyone knows stock XYZ is a good stock, they’ll be selling it away.
A great example is General Growth Properties.
This was a boring old US real estate investment trust (REIT) back in the day. And in 2009 the stock, like most others, dropped to unprecedented lows.
Who would buy a listed property trust when property prices fell through the floor?
The stock went from $30 dollars to a couple of cents.
Had you bought the stock, you would have had the chance to sell out for more than a 12,000% gain a few years later.
Now, I know a 120-bagger won’t get you to the US$1.4 billion mark. But it can turn small sums into a retirement fund pretty quickly.
Editor, Money Morning