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In 1999 Warren Buffett said that he can guarantee investment returns of 50% if he had a smaller portfolio. I discuss how Buffett invested in small cap stocks back in the 1950s and his 20 punch card investment rule that is probably the most important rule in investing.
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Text Comments (90)
Shiahkazi (12 days ago)
3:00 I think you are missing the bigger picture, you don't need to be right about a bunch of stocks just a few
Norsie (1 month ago)
Increasing market exposure and investing in small cap companies doesn't mean you will net 50%. If you get 25% back a year that is more than enough :)
Where can I sign up for 20%!
S Markovits (2 months ago)
The minimum for a small cap company?
S Markovits (2 months ago)
Thanks for replying.😀
A small cap is below $1 billion in market cap, or $2.5 depending on the scale while the minimum I would put it on $100 million, below that it is a microchip:-)
S Markovits (2 months ago)
And the minimum?
What minimum?
S Markovits (2 months ago)
what is the range for a "small cap" company?
Up to $2.5 billion in market cap.
Jim Jackson (2 months ago)
I wonder if he will let me do a mind meld with him
you can read the Snowball which shows how he thinks which is different than what the quotes say :-)
Night Watch (2 months ago)
buy gold
a bit always :-)
Rational Thinker (3 months ago)
Just don't get it wrong cause when you all in in one company and it folds bye bye
I think Buffett would hold up to 5 stocks in such a scenario.
Money Core (3 months ago)
I remember that interview and thought I misheard him at first. Buffett is not prone to bragging or exaggeration. For him to say that he could easily get 50% returns with $1M or $10 M is astonishing but I believe him. The fact that he could get 24% returns with $500 billion is even more amazing.
yep, even 10% with $500 billion in this environment is amazing
Kevin Snyder (3 months ago)
Cash is King right now. Hold your reserves because there will be a pullback soon. Then you will be buying stocks for pennies on the dollar. 💵💵
intx123 (2 months ago)
If you think retail investors are what causes crashes you're a fool.
Always keep cash to take advantage of other people's irrationality :-)
dwight sanders (3 months ago)
Glad to be old
Dougs2fresh (3 months ago)
50% a year that is less than 1% a week that doesnt sound to difficult
MH cbrians (4 days ago)
+bighands69 wow. I saw your other comment . You said you acquired small company..buffet style conglomerate albeit at much smaller scale. Can i add you as a friend at Facebook or have your email address?
bighands69 (3 months ago)
Average markets are about 10% growth. If you look at many stocks that grow you will find that most sit at around 10% while some will deviate from this wildly. I have compounded at about 28% for the last two decades. It involves lots of research and lots of more research again. It is not easy. 50% growth is for mega stars like Buffett. Only the best of the best will get growth like that.
depends on the perspective :-)
Remi Stardust (4 months ago)
I wish there was a way to have Buffett proof he could still get 50% return on 5 or 10 million $. Could we forbid him from managing Berkshire for a year? :)
Remi Stardust (4 months ago)
"And if you then bought on the basis of extreme value and quality you would easily hit 50% growth." Let's do it then!!! :D
bighands69 (4 months ago)
+Remi Stardust At a million you would not be dealing with lots and lots of companies you would have a handful of companies and a small reasonable number of shares. This would not create any real interest in the shares being purchased so it would not create frenzy amount speculators who would do some very lazy coat-tailing. And if you then bought on the basis of extreme value and quality you would easily hit 50% growth. You would identify hundreds of potential companies and then skim it down to the highest level of quality to a handful. Any of those companies would produce good growth but the ones you select would be the best performing.
haha, that is a good one
Remi Stardust (4 months ago)
1:38 Can you imagine seeing a then 20/21 year-old kid giving you stock advice??? In this instance, you would have been right to follow his advice, 'cause it's a young future legendary investor. But come on!
Tuan Anh Pham (4 months ago)
Nowadays yes but that would mean small caps only
no, just look at great opportunities, NKE is up 30% over the last 6 months
Hacktronix (4 months ago)
Sven, love your content but your audio is terrible! Try using a clip-on mic so it doesn't sound like your miles away. And try and use some foam cones to dampen the echo going on. But keep up the great work!
Thanks, improved on those things since then :-) I am using a mic now :-)
var1328 (5 months ago)
Since 50% returns are so easy, am sure it won't take you very long to become a billionaire $$$$
bighands69 (4 months ago)
+var1328 There are limits that you will reach even at 50% returns. To be a billionaire at 50% from from a starting investment of 1 million would take about 17 years. And from $100,000 it would take about 23 years. But long before that small companies would be getting suspicious about the $100 million purchasing of shares and this in turn would massively spike the prices of the shares you are buying and in turn destroy the value that you are trying to buy at. Buffett had this problem himself in the 1960s and had to get really creative with his investments so as to disguise what he was doing but he was not dealing billions back then.
hahahahahahahahaha, I wish:-)
Ludovic Beck (6 months ago)
Well if that Is the case then I might reconsider my plans for the future... The thing is that we have all heard time and time again Warren’s four layers of inspection when it comes to selection his stocks, but what we don’t know is how he actually determines the instrinsic value of a business and from that, determines whether a stock is shockingly cheap (buying opportunity) or not...
intx123 (2 months ago)
"Nosey People"? Dude it's the law for investment firms to disclose their transactions. Look at the Nasdaq for institutional holdings, all info is there for all to see because it's the LAW. "Nosey people"? lol...
bighands69 (4 months ago)
There is only so much information that is available to an investor. Buffett actually had very very little information in his early days. What buffett did was to put in lots and lots of research and probably did this for at least 70 hours per week. Most people are not simply willing to do that. A company's turnover, profits, dividends, share earnings and the companies track record was about the most that Buffett had for this time. Buffett was not quick to pull the trigger either and lost out on several investments because he did not act and he never went for gossip or tips. If I go to buy a business what I will look at is very simplistic information on its financials. I will not carry out some super complex analytical process involving some fancy algorithms. There was nothing complex about what Buffett did. Scale is important in all of this as well. When Buffett started to increase his investments what he discovered was that he came up against a wall of nosey people who would recognise what was going on. If you buy 0.2% of a companies shares nobody will blink at it the moment you buy 5% people will assume somebody is playing some large position and by the time you are 10% they will be 100% convinced.
I think that most of weight depends on the management, which is something you can't put in a model.
I am big fan of Warren Buffett. I like value investing strategy. Your channel is great. Hugs from Brazil.
Jatin Gupta (10 months ago)
Your E-mail id please??
Hi Jatin, I can't put my email on youtube, let me know what is your idea and then we will find a way to connect.
R Urban (10 months ago)
Chasing 50% in small/micro caps is chock full of drama. You'll need to make concentrated positions, less than 8 stocks, and your portfolio will wildly fluctuate, sometimes as much as 20% in a single day. Oh, and forget about a day job, you do that and your mind will be spread too thin and you'll start to lose money and confidence. I've tried this and vastly outperformed for 5 years but then came upon a realization... Unless you have $10M where an extra 5% outperformance makes a real difference compared to working a job, spending your life trying to outperform the market is wasteful. You'll also need the balls to make real big bets in tiny little companies with unknown futures and that is very, very hard to do
leDuke OfBacon (29 days ago)
Well, thats just because thats not really your job, to worry about beating the market, or to watch the company every day as it fluctuates, to worry when it goes down 20% one day... no no no your job is picking great companies and letting them do their thing for years, maybe decades, checking on them periodically, but not even close to on the daily. Do that and it's easy to make it compatible with a job or whatever it is. I used to be a trader, so I know it sucks and its incompatible realistically with anything else. Luckily I saw the light and became a long term investor.
bighands69 (4 months ago)
+R Rurban I am sorry to inform you but what you are talking about is pure speculation and is not value focused investing. Buffets method was not short term it did not look at daily fluctuations. It was about establishing a true value of the share and taking a long term outlook. There are many shares out there that are undervalued and can be had for a massive discount because people simply do not understand what they are looking at. Also if you have diversity in your portfolio you will be able to weather any storms that come about. I could easily take $10,000 and have it at $2 million in 25 years. There is no magical formula only the ability to look for good value and a long term view. There is no get rich quick scheme. Also if you dip in and out of the market what will happen is that you are going to get hit on the wrong crest of a investment wave.
T S (10 months ago)
Put ur money in a fund watch it go up put more money in watch it go up forget trying to pick a gem 💎 u might up with with nothing i choose funds
Haris Bokhari (3 months ago)
Why not put 15% of your investment equity ? Invest the rest yourself . If nothing else that 15% Is garunteed a 10% ish return rate . And u can use the rest for your own stock portfolio
bighands69 (4 months ago)
Funds will give good growth but building your own fund will produce even better growth where you pick the best performances and compound them.
:-) you can always buy lots of gems. As for the fund, many forget that long term returns will be between 3% and 4% and that since 2000 the return is below 3% on the S&P 500.
Martín Maas (10 months ago)
Again, Sven, thanks a lot for the time you devote to this channel! The best investment insight and information I ever found is here. Let me share my brief (and quite peculiar) story regarding small caps. For the past 3 years, I managed to make about 50% a year (or more) in very small cap companies that traded only in my local market (Argentina), at extremely low valuations. Some didn't even trade every day. The average Forward PER I paid was around 5, and I just bought my favorite shoe retailer, a 100-year old bath-ware company, the best known local home appliance manufacturer, some agricultural companies, a highway, a casino, etc. Everything got to normal values because of a big catalyst (politics) so many of these companies ended up as 2-baggers, 3-baggers and one 7-bagger (the shoe retailer!). I wasn't so lucky as to pick (and keep for a sufficient time) the 20-baggers, but that's not a serious issue. In some cases, fundamentals deteriorated significantly afterwards, but, fortunately, I saw it coming and rotated to safe stocks/sectors. Now I have only one local stock (Cresud/IRSA), as every other stock I'm familiar with seems too expensive and prices are still soaring, which concerns me. Cresud is not a small cap for my standards, but it is from an international perspective. I have been trying to get more acquainted with international investing, which, clearly, requires a much greater deal of research that I am used to, and more time than what I have in my hands. Some of your videos made me think that I should probably just sit in cash until I get a much clearer picture of the overall market and excellent opportunities appear (I can easily get good yields on local very short term bonds in the meantime). I will give that option more consideration. However, not only stock prices are still soaring here, the prices of residential real estate are increasing sharply, as credit is booming (mortgages are 1% of GDP, increasing 50% a year, and estimated current demand for those mortgages is already around 10% of GDP) which is another matter of concern for me, as my personal benchmark for measuring investment returns consists of 50% local real estate prices and 50% the cost of international travel/vacations ;-). So I guess owning a real estate company trading below book value like Cresud/IRSA is probably my personal best alternative. I saw your video on Real Estate, by the way. Unfortunately, I can't apply that here, as mortgages are 3,5% interest on inflation-adjusted capital, at best. As IRSA owns one of the banks lending those mortgages, everything I need seems to be right there at the time, trading below book value. Thanks again. By the way, did I read correctly and you are preparing a book?
Martín Maas (10 months ago)
Great to know about your book, Sven. Regarding the expansion of one's personal circle of confidence, I guess it takes a lot of preparation and, unavoidably, some experimentation too. For part-time investors, maybe an option is to specialize in some very specific sector. Maybe I could choose to invest only in shoe companies, or agriculture, for example. That way, I will know even more about the locally traded companies in those sectors that will probably remain too expensive for a long time, but not forever. Interesting. :-)
Hi Martin, you are at a place where I was in 2014. I knew every stock in Croatia, where I am from and also bought at extremely low valuations, did it in 2003 and did it again in 2009 when the market crashed 80%.The global environment is much more difficult to understand but nevertheless I think it could be done, there are perhaps even more opportunities but you have to invest the time to understand businesses and the market as good as you understand you local market ;-) Yes, writing one but I decided to do the value investing option with this too so don't expect it soon because I am really putting hart and soul in it to make it a quality value investing book :-)
Scott S (10 months ago)
I think 50% annualized returns are possible over a 10 year +/- period, but extreme patience is necessary, both on the buy and sell side.  I think the biggest mistake people make today is selling their winners too soon, followed closely by selling their losers too late.  Nobody liked to admit they made a mistake and selling any holding at a loss is a bruise to the ego.  Sure feels good to realize a 100-200% gain, until of course a few years later when the returns are a 1000%+. There are going to be winners and losers in any portfolios, but it seems most find it easier to sell a winner than a loser.  Just because a stock has risen 50%, 100% or whatever doesn't necessarily mean it's done rising. Just the same, just because a stock has dropped 50% doesn't mean it's done going down.  Dropped 100%, YES DONE!  How many people sold Google at $300 USD happy with a 200%+ gain a few years back then never got back in. Countless other examples as well. I pay close attention to profitability metrics such as ROE, ROA and most important ROIC.  I generally look at 10 year charts for these and if they're consistent or rising great; if they start trending down I get concerned and start looking at quarterly numbers and if it becomes a trend I start thinking about selling.   Those metrics don't work well for most speculative companies, so I focus on different areas for those types of companies. I'm no better than most and maybe even worse.  I've sold stocks way too early multiple times and am always hesitant to sell anything at a loss, so I need to be more disciplined as well.  I'm currently in the middle of trimming my portfolio holdings to a more manageable level.  Going well so far.  My cash position has increased significantly over the past few months, but I'm willing to be patient and happy to have the funds ready to pounce when I find the 'next one'. Thanks as always Sven!
intx123 (2 months ago)
You are clueless as well bighands69...… Let's just say he breaks his own rules all the time..... like how he bought INTC INTEL long time ago and dumped it well before 5 years, well before 1 year I think. I'm sure he dumped IBM too since it wasn't ever going back up. Honestly at this point in the game, I don't think it's even all that useful to be tracking Warren, he's already made it, he's not even hungry to win, he wins without trying. I'm just going to do my thing and see what happens.
bighands69 (4 months ago)
+Scott S Most people do not actually understand Buffett's game and are clueless to what he is doing even though he clearly admits to what he is doing. And what is even more insane is that what he was doing was not complex. 99% of people that are involved in investment are speculators who hoping to buy shares today and get massive returns in five weeks. Buffett has stated in his earlier life that his yards stick was to be five years at a minimum. Now if you buy a share for $30 and all of a sudden it starts to trade for $100 what would we do?
Scott S (10 months ago)
Moritz - Does GuruFocus offer actual charts showing ROIC?  The membership fees on GuruFocus seem steep on the surface ($399 for just U.S.A.) and then there's a 'Premium Plus' service adding another $899.  Are you a premium member and if so, why is it worth it to you.  Thanks Moritz!
Moritz (10 months ago)
Scott Shaw you find the ROIC on GuruFocus
Scott S (10 months ago)
Excellent point Sven...  Work harder / Earn more!  With that said, I'd pay for access to reliable and accurate ROIC charts.
Vamsi Anand (10 months ago)
Hi Sven, thank you so much for such wonderful and informative videos.Is there a link or a video where we can see your portfolio or stock recommendations returns over a span of these years? Thank you.
Vamsi Anand (10 months ago)
What would also differentiate you from other YouTubers is your transparency and your ability to project your success rate when they are available.This would clearly give you an edge over the others.
Vamsi Anand (10 months ago)
Invest with Sven Carlin, Ph.D. thank you Sven. I first heard you on a podcast on Jeremy Scott Bailey's website. I heard you talking about ANFI over there. I like how you talk about valuation and the potential risks. While ANFI has not shown much promise since then, I continue to be patient and hope for the best to come after November earnings report. Besides, yes I would like to see your success rate when that is available.
Hi. Not yet, but that is the second thing on my project to do list, first finish my book :-). I plan to make everything structured so that it is much easier to find than here on youtube.
Reinhard (10 months ago)
Finally, that's the kind of performance I want to talk about!!!!!!!!!!! :-) With companies you've suggested here on the channel over the last couple of weeks IT IS possible I guees. Companies like Amira, Jupai, AERCAP HOLDINGS or SYNCHORNY FINANCIAL. Totally undervalued small companies with great business, that's it. All we have to do is just DO IT and train our mindset in a way so that we have the psychological abilities for the 50%. I mean even to say okay I'm not satisfied with +25% upside chance within 12 months I want more (and except higher volatility for that), is probably something difficult to do. My performace for 2017 now is +27,5% (even I was down -4% in March I think). If we'll see good final weeks (don't need great weeks) in 2017 and my stocks will reach more or less fair value I can make +50% this year (if I don't do anything stupid til then). That would be unbelievebly incredible and a reason to celebrate (after rational decision are done). By the way Jupai is up +20% since I bought (I bought end of August and then 4 weeks later more - good call til now). Just to say it again: Jupai is up +20% within 5 weeks. I mean where the heck can I get +20% these days??? P.S. I need to reduce the number of stocks in my portfolio further (from 17 to 12 is planned til the end of 2017) in order to have the capacity for a much better focus.
bighands69 (4 months ago)
If you bought $10,000 of Coca-Cola shares in the 1960s for 0.1$ and then sold for $40 in today's world that would mean your investment would be worth about $400,000. Long term investment is where you will gain massive growth and that is only 7.5% compounded. Imagine if you were hitting 12% to 15% growth compounded that $10,000 would become 2.9 million to 10 million all from 10,000. That 1960s $10,000 would be about $35,000 in today's money. So if you invested $35,000 at 12.5% growth your return in 50 years would be nearly 40 million which in today's money would be worth about 12 million. And he the market deceived them and created one compound to rule them all.
Reinhard (10 months ago)
Oh no, that's not so nice. I really wish sunny days!!!
That is very good. I think I am down that much this year but have learned a lot. Don't worry, was up 46% last year so still positive and the year is not over yet. However, I think I have still so much to learn :-)
Moritz (10 months ago)
To gain 50% you have to be fully invested like Buffet in early times or Peter Lynch.
bighands69 (1 month ago)
+riyas m h I would suggest researching value investment and quality investment so that you can actually understand investment. Keeping your money in a bank account is a form of investment but it is just a very poor one.
riyas m h (1 month ago)
Invest with Sven Carlin, Ph.D. where should we keep the cash till then ...what if the right moment take 2 years? Will the money be lost to inflation? Could you Pls reply?
Aiko Switzer (2 months ago)
Love the optimism of this group. We are still learning everyday. Cash + right time
bighands69 (4 months ago)
Buffett is a classical case of an investor who redeveloped himself on several occasions. He went from small company investment to mega company investment. I have no doubt if he had 20 years left in him he would be buying out major corporations with 100% stock collection. The question is are their people who can come in and fill his legacy and carry on with the process. I am at where Buffett was in the 1950s and 60s but do not believe I will go further and that and will stay where I am. I have acquired numerous small companies like Buffett did in the 1960s but that is as far as I want to go.
bluejackscanada (10 months ago)
Best to dollar cost good companies with a competitive advantage. never forget Buffet rule #1. NEVER LOOSE MONEY AND #2 NEVER FORGET RULE #1.
Jonas Söderman (10 months ago)
Great video. Have you had a chance to look at labrador iron royalty? If so what are your thoughts about the company?
Not yet, my research list is long and time is never enough:-)
Gainde 113 (10 months ago)
20 punch card is great! I think that many investors just diversify to feel better but end up with companies that aren't designed for the long run. 6-12 positions should be enough to monitor your portfolio as private investor with limited time resources.
PeriMCS (3 months ago)
Invest with Sven Carlin, Ph.D. but that would more than 20 investments
Yes, I really think a private investor can follow 30 stocks in 10 sectors or countries and by using just a simple measure as the CAPE, rebalance around it and create extreme returns at low volatility.

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