Today I am going to share a method that one of the two best ways for individual investors to make money in stocks. I am talking big money, money that causes George Soros to blush with envy. If you put half your money into this strategy and half into small banks below book value, you would outperform pretty much every mutual fund and hedge fund that ever existed.
It is not easy to execute this strategy. You will own stocks no one has ever heard of before. You will own tiny companies in both parts of your portfolio. There will be many times you ask yourself, "WTF am I doing?" when you click the buy button in your brokerage account.
This is a variation of the technique that Ben Graham developed decades ago and his student Warren Buffett used to get rich. Buffett got so rich he could not use this strategy anymore.
Walter Schloss used a variation of it to compound his clients' money at more than 20% annually for almost 50 years.
The beauty of this strategy is that institutions cannot play the game. Most of the stocks are too small to move the needle for their portfolio.
This strategy and small banks stocks are why I laugh when people tell me value investing doesn't work.
It works as well as id did when Buffett used it to make millions in the 1950s and 60s.
It just doesn't scale.
You cannot use this strategy to run hundreds of millions or billions of dollars. It really cannot be used to run any outside money as subjecting these small companies to buying and selling based on the whims of passive outside investors would often be disastrous.
It can be used to manage your money. It is a hands-on ...