I could make 50% per year

[DesertCat]

Warren Buffett: "It's a structural issue...yes, with a small sum like a million dollars, I could make 50% or more a year. The key is rationality. There are always going to be times when humans act irrational and this is time to make your money. I've made a career of cashing in when people act irrational."

Nice writeup about a college kids visit with Warren Buffett.

Boy do I feel like I've been slacking off. I didn't do anything close to 50% last year!

[technologic]

what typically are good returns for individual professional investors yearly?

[bav]

Beating the market is good.

[Groty]

He's been challenged about making that statement by a couple of different interviewers. I've never heard him back away from it.

I think I remember he started the partnership with $105,000 from family and close friends and after 7 years it had grown to something like $9.2 million. If my numbers are right, that's a compound annual rate of return of about 89%.

Doing 50% would look like he's having his own personal bear market.

[DesertCat]

Groty,

I have his partnership letters, his compounded annual return from 957-1968 was 31.6% per year. After fees/profit share, his investors earned 25.3% per year. The Dow returned 9.1% per year during that span. I think your numbers must be for his personal account, which includes his management fees & profit. The greatest invention in the world so far has been using OPM (other peoples money) to get rich

So 50% is significantly more than he averaged in the partnership days. But at the end he was managing almost $80M (he returned 58.8% in his last year 1968). I think Buffett is saying two things here, one is that with a tiny portfolio ($1M today is probably like $100-$200k back then) he can find more opportunities, and that experience is everything, he's even a better investor today. But mainly I think he's talking about the tiny portfolio. Which means I suck, because I have a tiny portfolio!

And as Bav said, beating the market is good. Historically the market has returned around 9-10% per year. My guess is that anyone who averages 20% per year over long periods (decades) is a hall of famer. 15% per year makes you an all star. 12% per year makes you very good. 10.1% per year is enough so that you'll never have to look for work outside the money management business.

[captZEEbo]

what kinds of investments does he say can make 50% per year with about 1M portfolio? Is he talking day trading stocks or what? Would he be using a lot of margin? More details plz

Also, is he thinking conservative 50%, meaning earning much more wouldn't be tough, but if things went bad it'd be 50%?

[DesertCat]

[ QUOTE ]
what kinds of investments does he say can make 50% per year with about 1M portfolio? Is he talking day trading stocks or what? Would he be using a lot of margin? More details plz


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Pretty sure he would not use much margin, if any. He's not talking about day trading. He's likely talking about arbitrage situations combined with typical value investing opportunities (i.e. it's easier to find undervalued companies in the microcrap area than in bigger caps).

In the past he's done a lot of merger arbitrage to supplement returns, I think his portfolio is too big to do it anymore. But to increase returns in merger arbitrage it was common for him to use a safe amount of margin for the arbitrage positions. But I'm not aware of him using margin in any other situation. He won't take on margin risk in his general portfolio.

An interesting story he once told about his early arbitrage.

[ QUOTE ]

Some offbeat opportunities occasionally arise in the arbitrage field. I participated in one of these when I was 24 and working in New York for Graham-Newman Corp. Rockwood & Co., a Brooklyn based chocolate products company of limited profitability, had adopted LIFO inventory valuation in 1941 when cocoa was selling for 50 cents per pound. In 1954 a temporary shortage of cocoa caused the price to soar to over 60 cents. Consequently Rockwood wished to unload its valuable inventory - quickly, before the price dropped. But if the cocoa had simply been sold off, the company would have owed close to a 50% tax on the proceeds.
The 1954 Tax Code came to the rescue. It contained an arcane provision that eliminated the tax otherwise due on LIFO profits if inventory was distributed to shareholders as part of a plan reducing the scope of a corporation’s business. Rockwood decided to terminate one of its businesses, the sale of cocoa butter, and said 13 million pounds of its cocoa bean inventory was attributable to that activity. Accordingly, the company offered to repurchase its stock in exchange for the cocoa beans it no longer needed, paying 80 pounds of beans for each share.
For several weeks I busily bought shares, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts. The profits were good and my only expense was subway tokens.

[/ QUOTE ]

[ QUOTE ]

Also, is he thinking conservative 50%, meaning earning much more wouldn't be tough, but if things went bad it'd be 50%?

[/ QUOTE ]

In the past he said he "guaranteed" 50%, so I think that's the low end. Of course, he may not be guaranteeing it on an every year basis, but more on an annualized basis over multiple years.

[ISF]

I really dont think this is that bold a statement. The problem is I dont think there are any smart professinal investors that would spend their day managing 1 mill. There are tons of opps with different classes of shares, warrants, blank check companies, closed end funds etc where you can buy 30k-100k worth of a security no problem at 30+% discounts to either cash or a security with rights to the same cashflows. Same with micro-cap stocks without much of a float. The thing is someone good at investing isnt likely to be managing only 1 million least not for long. There is a hedge fund manager that the guys I work for used to have money with that litterally averaged 50% for like 8 years running almost market neuteral by capping assets at only 50 million and giving money back each time he hit 150. I would bet most of the smart managers that can add 10% of alpha managing > 500 million would have no problem making >40% managing < 10 mil.

[skierdude1000]

I returned about 25% last year. [img]/images/graemlins/smile.gif[/img]

[pig4bill]

[ QUOTE ]
I really dont think this is that bold a statement. The problem is I dont think there are any smart professinal investors that would spend their day managing 1 mill. There are tons of opps with different classes of shares, warrants, blank check companies, closed end funds etc where you can buy 30k-100k worth of a security no problem at 30+% discounts to either cash or a security with rights to the same cashflows. Same with micro-cap stocks without much of a float. The thing is someone good at investing isnt likely to be managing only 1 million least not for long. There is a hedge fund manager that the guys I work for used to have money with that litterally averaged 50% for like 8 years running almost market neuteral by capping assets at only 50 million and giving money back each time he hit 150. I would bet most of the smart managers that can add 10% of alpha managing > 500 million would have no problem making >40% managing < 10 mil.

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I know a few hedge fund managers that would quit around August or September because they had hit a 20-25% target of return to the client. That means their return was around 30%.

Techno, as for your question, individuals trading a smaller account have more flexibility and can move faster. A couple of my buddies started 6 or 7 years ago with $20k, and made WSOP FT money last year. Do the math. [img]/images/graemlins/smile.gif[/img]