Young and Net Net S !

He became a millionaire at the young age of 30 and he became a billionaire in his 50's. Today, we're going to talk about the investment strategy that made Warren Buffett his 1st Million Dollars.

 As you know, Warren Buffett is one of the most revered investors in the world and, everybody talks about him. Of course, we have to cover him as well... Little did people know that He became a millionaire at the young age of 30 and he became a billionaire in his 50s. A lot of investors who try to emulate his investing strategies are looking at the current Warren Buffett. NOW! where he is at the Billionaire status.

So, when he was a millionaire, he was investing very differently to when he was a billionaire. In other words, in terms of an individual context right, I would think that following the investment strategy that Buffett used to get his 1st million, would make a lot more sense, for the average guy. Rather than following his investment strategy when he was in his billionaire status In his millionaire status, what he did was to invest using this strategy called... "Net Net Strategy" He didn't develop this strategy, it had been actually learned from his teacher; Benjamin Graham. Essentially,

This "Net Net Strategy", is using this formula. Essentially, Graham was saying that, if the stock price of a counter is LESS THAN 2/3 of the difference between the current assets and the total liabilities, of course, divided by the number of shares, to get the per-share value, if you can fulfill this condition, it is actually a Net-Net stock. And you can just buy it. Without looking at the company fundamentals or financials or making any qualitative assessment, so just by this formula itself, you can make a decision whether to buy a stock or not.

Warren Buffett did a lot of this kind of investment, which he said it's akin to cigar butts. He has this famous phrase which says... A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the discount purchase will make that puff all profit. So what he's trying to say is that the "cigar butt stocks" are not your kind of 'sexy', 'glamorous' stocks that usually people buy. These stocks are very 'unloved', unfamiliar to most people and they may even have a lot of problems such as even going into bankruptcy. But, in this case, because the share price is selling at such a ridiculously cheap price, you are still able to pay a fraction of the entire net worth of the company! So, even if the company goes into liquidation, you can make a profit out of it. He was beginning at his younger age, buying all these kinds of unloved stocks and very dirt-cheap stocks. And, he had a lot of successes. It was only until that he became a victim of his own success, investing with so many returns, that he could not buy all these small companies anymore.

 In the 1999 Business week interview, he mentioned this. So he used to invest in 'mosquito' stocks, which are essentially the small-cap stocks, and eventually, he has to invest in 'elephant' stocks because his capital has grown so much. And in that sense, actually, for an individual investor, most people won't have this 'too much capital' problem and that is why he would recommend that people start with 'mosquito' kind of stocks. Because he said in the same interview, if he had $1 million, he would invest in 'mosquito' kind of stocks; the small-caps, the 'net-net', the 'cigar butts', the unsexy ones. And he also added that he would be confident to achieve a 50% per annum return! That is very unheard of. Not only that, but he also said that he can guarantee that he would achieve this kind of return buying 'mosquito' stocks, or essentially, the net-net stocks. So, I believe that for most investors, to start off with this kind of small-cap stocks, 'net-net' strategy, make more sense, by following what Warren Buffett has been doing in his younger days, with lesser capital than if you want to copy him which in his billionaire status now, with very limited choices, he can only look at the bigger counters which as an individual, you do not need to restrict yourself in that way.