Tuesday, December 19, 2023

Warren Buffett's Secret To 50% Returns

Once a company reaches a certain size, significant growth is difficult to sustain. It is often easier achieve 10% growth in a $10 million company than growing a $10 billion dollar company 10%. Knowing this, savvy investors looking for growth will turn to small-cap stocks.

Consider what Warren Buffett has to deal with. His investments have grown so large that it is difficult to achieve the same growth rates as the early years. Being so large, Buffett is forced to take significant positions and only select from the best of large cap stocks. This dramatically limits his investment options.

In 1999 during Berkshire Hathaway's (BRK.A) shareholder meeting, Buffett stated that he could generate 50% returns if only he had less money to invest and focus on small companies. It's the smaller, faster growing companies that typically offer the highest returns.

Small caps tend to be thinly traded and often not closely followed by analysts. This provides opportunity for identifying stocks trading at a significant discount to their intrinsic value.

My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 150+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.

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