The World's Greatest Investor Would Buy These Stocks...What about You?

Dec 11, 2019

Richa Agarwal, Research analyst

Ace investor Warren Buffett became a billionaire many times over by investing in stocks.

But do you know how he got is initial lucky break?

Straight out of college which stocks do you think he was looking at?

Was he looking for the biggest names?

The most talked about stocks?

The most widely covered and highly recommended stocks?

The big success stories and the blue chips?

The Walmarts and the Apples of the world?

Not at all!

He was busy scouring the stock market for small unknown companies that no one was talking about, and I'm sure you've never read about.

Why?

Because the investing genius knew that you can make some money in big, well-known names but if you're after the really big returns, then no...you're not going to get it from the big stocks.

Here's Buffett on what he was looking for:

  • When I got out of Columbia the first place I went to work was a five-person brokerage firm with operations in Omaha.

    It subscribed to Moody's industrial manual, banks and finance manual and public utilities manual. I went through all those page-by-page.

    I found a little company called Genesee Valley Gas near Rochester.

    I found Western Insurance in Fort Scott, Kansas.

    I found the Union Street Railway, in New Bedford, a bus company.

So you see, he was busy digging out smaller, hidden, unknown companies which were completely under the radar of most investors.

Buffett wanted to get rich and he was in a hurry.

He knew the best formula for this. He was smart enough to exploit the potential of small caps to jumpstart his fortune when he began investing in the market.

He was working with much smaller sums of money then, so he could operate in this highly lucrative arena.

He is too big now, which makes these small companies and massive profits out of bounds for him.

But this is how he got big in the first place.

This is how he could move on to the Walmarts and the Apples of the world...because he had made so much money by then, he couldn't continue investing in smaller companies because of their size.

But if picking the right small cap stock is the secret to riches, why do you not hear about such smaller companies more often?

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Thing is, stock brokers don't touch them. The smallest, and thus the juiciest opportunities are out of bounds for brokers because they just aren't bought and sold enough in the market.

And this trading - called liquidity in stock market parlance - is what brokers thrive on. The more the liquidity, the more the trading and thus the more the commissions they make.

Thus, the tinier stocks just don't make the cut for them, even if these stocks could be very lucrative.

Even mutual funds mostly avoid them.

You see, when you invest in a mutual fund, they're not just investing for you, but lakhs of other people too. Working with so much money means they need to buy up thousands of shares at a time.

In the case of small cap stocks with low liquidity, their share prices would fly through the roof with such big orders. This makes many of them untouchable for mutual funds.

But with the right research, you can pick out and take advantage of good small cap stocks.

I'm talking about smallcaps that have the potential to multiply your money like no other stock.

Like Buffett, if you're looking for a way to jumpstart, you're fortune building, it doesn't get any better than this.

The low competition in such stocks from other investors, and the resultant opportunity to scoop them up low and early - before others do - offers you the potential for massive profits.

Profits of the kind that are too hard to ignore!

As we move into 2020, the stock market right now is positioned in a very interesting manner...

The market is offering an even more compelling reason to buy small-cap stocks today.

Of course, the profits will go only to those investors who are smart enough to realise the opportunity.

Stay tuned.

I'll spill the beans in tomorrow's edition of Profit Hunter...

Warm regards,

Richa Agarwal
Richa Agarwal
Editor, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Dear reader, to know all about my #1 small-cap stock pick for 2020 please click here.

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