Warren Buffett likes to remind us that he likes easy one-foot hurdles he can step over rather than having to jump over the higher ones. He's referring to companies that are easy to understand and provide a lot of downside protection. It's easy to make money if we can find these easy-to-step-over hurdles!
However, for us non-Buffetts, finding these safe money-making investments is not that easy -- and Buffett admits it's getting tougher for him as well. Investment is about taking risks and, of course, managing them.
So how can you and I beat Warren Buffett at his own game? Not by doing better research than him on public companies. Nor by buying big, private ones either.
Be where Buffett cannot be
Both you and I have an advantage over Buffett: we live in different places, buy different products, surf different websites, have different tastes and most importantly, we come in contact with new, small, local businesses that Buffett cannot cover!
What does this mean? Should I be buying small start-ups?
Be an angel to small businesses and start-ups
I'm not advocating you go door to door trying to buy your local landscaper or butcher shop. But you can be a small angel investor in small businesses if you simply ask them. Many business owners will be happy to take your money. All you have to do is find one that you believe in. And you have the tools for that, and Warren Buffett doesn't: you already buy their services or goods or know about their future products or services first-hand, by word-of-mouth and local publicity.
Angels don't have to be those who can offer multi-million dollar deals or even hundreds of thousands. I once read a short biography of a successful entrepreneur named David Portes, who started out by selling candy on the streets, with borrowed money -- ten dollars. By the time I read about him, he was already making more than a hundred thousand a month from teaching marketing seminars and his candy-selling business. Those ten bucks came from an angel -- who, given the circumstances, didn't think of himself as an angel. But he effectively was.
You too can be an angel investor to perhaps someone in your family or a friend. Yes, investing in start-ups and small businesses can be a huge risk. But if you do your due diligence as you would do on a big business(*), you have an edge over Buffett and over Wall Street that not very many people have.
Think about it, how many people knew about Bill Gates when he was just a kid with a computer? It's true that for each Bill Gates there are thousands of Broke Bobs and Bankrupt Sams out there. Your job is to find the ones that are competent, that have a great product or service, a lot of energy and integrity and most importantly, whom you trust.
Being an epic investor is about looking where others aren't.
* Remember, in this blog, we never recommend you invest blindly in anything, big or small, new or established -- you still need to do the scuttlebutt to find a suitable business that qualifies for your investment.