How to Invest with small amount of money by Warren Buffett and Charlie Munger

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01. i think if you're working with a small amount of money you know i think you can make very significant sums i'm michael zenger from danvers massachusetts that's a town who's missed who's banned mr buffett so generously sent to the rose bowl parade last year so you're very popular guy in my town good morning mr buffett mr munger mr buffett i want to ask you this question last week when i ran into you after gillette's annual meeting but i choked so now there's no pressure here goes in the years from my reading in the years from 1956 through 69 you achieved the best results of your career quantitatively 29 annually against only 7 for the dow your approach then was different than now you look for lots of undervalued stocks with less attention to competitive advantage or favorable economics and sold them rather quickly as your capital base grew you switch your approach to buying undervalued excellent companies with favorable long-term economics my question is if you're investing a small sum today which approach would you use well i would use the approach that i think i'm using now of trying to search out businesses that where i think they're selling at the lowest price relative to the discounted cash they would produce in the future but if i were working with a small amount of money the universe would be huge compared to the universe of possible ideas i work with now you mentioned that 56 to 69 was the best period actually my best period was before that was from right after i met ben graham in 19 early 1951 but from the end of 1950 through the next 10 years actually returns averaged about 50 a year and i think they were 37 points better than the dow perry or something like that but that i was working with a tiny tiny tiny amount of money and so i would pour through volumes of businesses and i would find one or two that i could put ten thousand dollars into or fifteen thousand dollars into that would just ridicul they were ridiculously cheap and obviously as the money increased uh the universe of possible ideas started shrinking dramatically the times were also better for doing it in that time but i think that i think if you're working with a small amount of money with exactly the same background that charlie and i have and same ideas same same whatever ability we have you know i think you can make very significant sums but you but as soon as you start getting the money up into the millions many millions the the the curve on expectable results falls off just dramatically uh but that's that's the nature of it you've gotta you know when you've you when you get up the things you can put millions of dollars into you've got a lot of competition looking at that and they're not looking as i did when i started when i started i went through the pages of the manuals page by page i mean i went through 20 000 pages uh in the moody's industrial transportation banks and finance manuals and i did it twice and i actually you know looked at every business i didn't look very hard at some well that's not a practical way to invest tens or hundreds of millions of dollars so i would say if you're working with a small sum of money that and you're really interested in in the business and willing to do the work you can you will find something if you were you there's no question about in my mind you will find some things that promise very large returns compared to what we will be able to deliver with large sums of money charlie well yeah i think that's right a brilliant man who can't get any money from other people and is working with a very small sum probably should work in very obscure stocks searching out uh unusual mispriced opportunities but you know you could that's such a small world it may be a way for one person to come up but it's a it's a long slog yeah most smart people unfortunately in wall street figure that they can make a lot more money a lot easier just by one way or another you know getting an override on other people's money or or uh delivering services in some way that people and the monetization of hope and greed you know is a way to make a huge amount of money and right now it's very just take hedge funds i mean it's i i've had calls from a couple of friends in the last month that don't know anything about that investing money they've been unsuccessful and everything else and you know one of them called me that they said well i'm forming a small hedge fund 125 million he was talking about like the thought that since it was only 125 million maybe we ought to put in 10 million or something i mean if you looked at this fellow's schedule d on his 1040 for the last 20 years you know you'd think he ought to be mowing lawns but yeah but he may get 125 million i mean you know it's it's just astounding to me how willing people are during a bull market just to just to toss money around because they you know they think it's easy and and of course that's that's what they felt about interstate shocks a few years ago they're thinking about something else next year too but uh the the biggest money made you know in wall street in recent years has not been made by great performance but it's been by been made by great promotion basically well i would state it even more strongly i think the current scene is obscene i think there's too much mania there's too much chasing after easy money there's too much uh misleading sales material about investments there's too much on the television emphasizing speculation in stocks