Why You Have a Cash Advantage Over Warren Buffett in Today's Markets

When Warren Buffett took control of Berkshire Hathaway in 1964, few could have imagined the investing journey that lay ahead. Over the next six decades, he transformed the company into a cash-generating powerhouse, delivering returns that would make most investors weep with envy. Yet there’s an ironic twist to this legendary success story: as Buffett himself acknowledged decades ago, the very size of Berkshire’s cash reserves and capital base—which now exceeds $380 billion—has become a structural limitation on future returns. Meanwhile, you, as a smaller-scale investor, possess an inherent advantage that even the Oracle of Omaha cannot replicate.

How Warren Built a 5.5 Million Percent Return—And Why He Can’t Repeat It

Berkshire Hathaway’s track record speaks for itself. From 1965 to 2024, the company averaged 19.9% annual returns. But the story becomes fascinating when you examine the distribution of those gains. The truly explosive years—returning +77.8%, +80.5%, +129.3%, +102.5%, +93.7%, and +84.6%—all occurred between 1968 and 1989, during the company’s formative decades when its total capital was a fraction of today’s size.

Warren himself predicted this slowdown. Back in 1994, in a letter to shareholders, he warned that future performance would not approach past results. His reasoning was straightforward: compound growth is mathematically easier to achieve with smaller starting pools. As he stated in a candid 1999 interview, “I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” The gap between then and now illustrates a fundamental truth about investing: Warren’s massive success has ironically handcuffed his ability to generate outsized returns going forward.

The Real Constraints: Scale and Regulatory Requirements

Two structural factors explain why Warren faces limitations that don’t apply to individual investors like you.

First, there’s the scale problem. Imagine Berkshire identified a small-cap gem and invested $100 million, watching it grow to $1 billion. That $900 million gain sounds impressive until you remember Berkshire holds over $380 billion in cash. For a conglomerate of that magnitude, a nine-figure profit barely moves the needle. For a retail investor with a $50,000 portfolio, identical percentage gains translate into life-changing wealth creation.

Second, there’s the regulatory hurdle. If Berkshire attempted to acquire more than 5% of a promising small-cap company’s voting shares, it would trigger a Schedule 13D filing with the Securities and Exchange Commission. This mandatory disclosure immediately alerts the market to Berkshire’s interest, driving up valuations and eliminating the opportunity. Individual investors face no such constraints. You can quietly build positions in under-the-radar companies without regulatory filings or public disclosure.

In essence, Warren’s position as a $380 billion cash manager paradoxically makes it harder for him to beat market returns than it is for you to do so.

The Smart Solution: Accessing Small Caps Through a Low-Cost Fund

So how can you capitalize on this advantage? The Vanguard Small Cap Index Admiral Shares (NASDAQ MUTFUND: VSMAX) offers a straightforward pathway.

This fund tracks a broadly diversified index of small U.S. companies and has quietly outperformed its benchmark since its 2000 inception, delivering 9.21% average annual returns. What makes it exceptional is its ultra-low expense ratio of just 0.05%—a stunning 95% cheaper than the 0.97% average expense ratio of comparable small-cap funds. This cost efficiency directly translates into more of your returns staying in your pocket.

The fund’s holdings tell an interesting story. With 1,324 stocks in its portfolio and a median market cap of $10 billion, it provides genuine diversification. The average price-to-earnings ratio sits at 20.8—a remarkable 33% discount compared to the S&P 500’s current P/E of 28.5. This valuation gap appeals strongly to value-conscious investors who believe smaller companies are trading at more reasonable multiples than mega-cap stocks.

Why This Matters More Than Ever

The historical evidence is compelling. When Motley Fool’s Stock Advisor identified Netflix on December 17, 2004, a $1,000 investment at that time would have grown to $450,256. When they recommended Nvidia on April 15, 2005, the same $1,000 would have ballooned to $1,171,666. Stock Advisor’s overall track record shows 942% average returns versus 196% for the S&P 500—a crushing outperformance.

You don’t need Warren Buffett’s insider knowledge or Berkshire’s $380 billion cash position to generate superior returns. You simply need exposure to small-cap companies before they become tomorrow’s household names—precisely the advantage you possess that Warren cannot exploit due to his scale and regulatory constraints.

For investors seeking a low-cost, diversified, rules-based approach to capturing small-cap upside, the Vanguard Small Cap Index Admiral Shares represents a compelling vehicle. It democratizes access to the exact asset class where individual investors hold a structural edge over even the greatest investors in history.

The advantage isn’t luck. It’s mathematics and regulation working in your favor.