BIG Opportunity For Small Investors
Billionaire investor Warren Bufett is known for making clever business strategies; no wonder why he’s one of the richest people around the globe. Earlier, he has been buying massive businesses with large competitive advantages. And there’s a good reason for this.
Companies like American Express, Wells Fargo, and Moody’s have such dominating positions that they’re likely to increase for years, providing outstanding returns for long-term shareholders. But that’s not the only reason. If Buffett had a small portfolio, what do you think would he do?
Back in the 1960s, before Berkshire Hathaway and before the marvel of online stock investing was discovered, when Bufett was managing much less money, he focused on three types of opportunities: generals, controls, and workouts.
Generals include undervalued companies where Buffett was simply a shareholder. Controls, on the other hand, are companies in which Buffett took a large position to influence the management of the business. Finally, work-outs consist of special situations like spin-offs, mergers, and liquidations.
Most investors are familiar with the first and the second types of opportunities but hardly know the last. Basically, work-outs are particularly interesting because of two factors. First, implementing the internal controls required by Sarbanes-Oxley is getting so pricey that many small companies are opting to go private by buying out small shareholders for cash. Second, we’re at the top of a liquidity cycle, resulting in a near-constant string of acquisitions. The combination result in many work-out opportunities.
Work-outs don’t come without risks. If the deal goes sour, an investor can lose money as the share prices drastically readjust. The remedy is keeping your eyes open and being willing to read through SEC filings to discover the treasured gems…
