Why is it Getting Harder for Guys Like Warren Buffet These Days?

Source: Celyn on Unsplash.

No, it’s not about his age.

Lots of money.

Tons of it.

If Buffet started over today, he would probably make a ton of money.

Buffet has too much money today. That’s his primary issue.

He’s gotten way too successful at what he does. So successful, in fact, that he can completely purchase anything he wants — then he could buy even more.

According to 13F filings, Berkshire has about $208 billion in equities in the stock market. Buffet also carries over $100 billion in cash currently.

You can’t make the same amount of money with over $300 billion that you could with $1 billion. You couldn’t move $300 billion the way you could $1 billion.

If you want proof, look no further than Renaissance’s Medallion Fund. The fund is limited to $10 billion each year and it has annualized approximately 70% in returns for the last 30 years.

These numbers have killed Buffet’s track record. However, if you look at Renaissance’s larger portfolios, you’ll find similar results to Berkshire’s.

This is because the larger the size of the portfolio, the exponentially harder it gets to make that same proportional leap. 70% return on $300 billion is an insane amount of money year over year. You can’t churn equities over that quickly because you would move the entire market by doing so.

The Securities & Exchange Commission, among other entities, wouldn’t like you so much.

Here is a direct quote from the man himself:

“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” — Warren Buffet

Proportionally speaking, he would be far more successful with less money today. But who cares, even a 10% return on $200–300 billion is an insane amount of money.

People often forget the size of a portfolio when looking at performance percentages.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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