Warren Buffett, The Kentucky Derby, and How to Make Money Today

Each year thousands of value investors and Warren Buffett disciples flock to Omaha, Nebraska for the Berkshire Hathaway meeting to sit at the figurative feet of one of the greatest investors of all time.

I have learned much from Buffett, and I think even more from Co-Chairman Charlie Munger over the years, but I have never had the slightest interest in going to the big party.

I have never gone, and I doubt I ever will.


For one thing, that’s my birthday weekend. And every year the good folks down in Kentucky throw a huge party and horse race in my honor.

How could I miss that?

Besides, I am not that interested in what Warren and Charlie are doing today. Warren and Charlie today oversee a complex conglomerate with over $600 billion in assets and almost $300 billion in net equity.

While I have no complaints about my lot in life, I just don’t have the same problems they face.

What Warren thinks about United Airlines (UAL) beating their passengers does not make me money.

I gain exactly zero from a discussion of Berkshire’s portfolio business, and I learned what I needed from Warren from shareholder letters more than a decade ago.

I won’t ignore it entirely. I will read the transcripts, but I don’t expect to come away with any unique new insights. I am far more interested in what Warren and Charlie did to get right in the first place that in what they do to stay rich today.

Berkshire isn’t about small-cap investing anymore

The numbers that Warren and Charlie when they first started out are breathtaking.

From 1957 to 1969 Warren Buffett partnership earned over 23% a year after all fees.

From 1962 to 1975  Munger’s partnership averaged about 19% a year and sidestepped much of the carnage of the 1970s market collapse. While they differed somewhat in their approach to investing the core principles were the same. They bought good companies and great prices and held then until they could get an unreasonable attractive price for their shares.

They changed their approach as Berkshire began to swell in size.

Back in 1980, Berkshire’s investment portfolio was worth a little over $500 million dollars. As of March 31st, 2017 it was worth roughly $190 billion.

When you have that much money to invest, you simply cannot buy the types of smaller companies that drive much of the returns in the early years that made them rich in the first place.

Both men have admitted that if they had smaller amounts of capital to invest, they would revert to their old style.

Warren has repeatedly said that if he were starting out today, he would buy small company stocks.

In 1999 at the Berkshire Hathaway meeting he said, in response to a shareholder question what he would do if starting over today, he replied “We started out this snowball at the top of a very long hill. My advice is either start very early or live very long. I guess I’d do it the same way; maybe I’d start with small companies and buy good businesses. Or little pieces of them called stocks.”

Well regarded value investor Monish Pabrai, who is the managing partner of the Pabrai Investment Funds, ran into Charlie Munger a couple of years ago at an event at The Huntington Library in San Marino, California.

He asked Munger if he would still promote buy and hold notion forever if he were running a small pool of capital. He said that he’d do it like he did when he ran his partnership — buy at a discount, sell at full price, and then go back and do it all over again.

With a smaller amount of money a deep value small cap strategy is the best approach to building wealth over time.

We know how they did and we even know how to find the companies with similar attributes to those the used to get rich in the first place.

Now it’s simply a matter of doing it.

Tim Melvin

Written By Tim Melvin

As a 30-year veteran of the financial services and investment industry Tim Melvin served as a broker, advisor, and portfolio manager. He’s combined this nearly three decades of experience with a love of value investing in order to help investors worldwide to multiply profits and build their nest eggs. As an avid value investor, Tim...