Investing as a business

Quite frequently we can see retail investors make big shots. For instance, WSJ just reports that a small currency investor in California turned $50K into "a number slight north to a 7-digit number" in one year. Such heroic stories won't disappear on media.

However, investing needs to be incorporated rather than staying retail.

Warren Buffet started his first investment business in 1957, called Buffet Partnership LLC. He was the general partner so that he could invest freely the $105.1K (he put in $100) at the start. The performance of the partnership was wonderful, resulting 30% annual returns in the next 13 years (not a single down year). By 1965 (he closed it in 1969), the assets under the partnership was $26M. Where did $26M come from? It came from extra funds he attracted. If no extra funds, $105.1K in 9 years (1957 to 1965) with 30% annual gain would be about $1.1M.

With $26M after 9 years, that equivalent to saying the partnership had been raising fund about $500K every year. That is much better than capital return solely because capital gain would never exceed $300K in the 9 years. Abundant funding combining Buffet's stock picking skills sent the partnership an excellent track record.

So the insight is: consider stellar returns are given, say 20% annually, investors got to establish themself as business owners, not retail investors. It is a huge waste to being retail investor. A viable business model to ensure return sustainability is very important. It is well known that a big ship can weather terrible turf better than a small boat.

On the other hand, retail capital should look for great return opportunities to join an entity so that returns can be more ensured.