Your Edge Over Buffett

Warren Buffett tops the list of the greatest investors of all time. Starting from modest means, he amassed a multibillion-dollar fortune through prudent, value-focused investing. In a fair competition, where each investor had 10 years and started with the same bankroll, Buffett would very likely wind up at or near the top again.

But Buffett is a victim of his success. Because he was a such a great investor years ago, we individual investors have a huge advantage over him today.

Yes, it's hard to believe
Consider that Buffett's investing vehicle, Berkshire Hathaway, currently has a market cap of $152 billion alongside some $44 billion in cash. Both are huge sums.

You can start to see the issue here. Buffett simply has to make enormous investments for them to have any appreciable impact on Berkshire's financial condition. If it's not measured in the billions, it's too small to matter. To invest just 4% of the company's capitalization would require a $6.08 billion buy. And even if that $6.08 billion investment were to double over the next year, it'd still be hardly noticeable to Berkshire.

Moreover, there are few companies in which one could invest $6 billion. The few viable candidates frankly aren't likely to double in one, three, or maybe even five years. Take a look:

That "days to fill" column assumes that Buffett would be willing to completely monopolize the trading volume of the stock. Since supply and demand determine the short term prices of stocks, such heavy buying pressure would undoubtedly drive up their prices. That would eat away much, if not all of whatever mispricing advantage Buffett had been looking to exploit in the first place.

So what?
The problems of size aren't unique to Buffett and Berkshire. All money managers with several billion under their control face the same difficulties. No matter who you are, though, you don't get put in charge of billions of other people's money unless you're fairly good at what you do. As a result, there are a lot of really smart people looking over and investing in the same small set of huge companies.

So why should you want to do the same? Your advantage as an investor is that you can invest in small caps. These stocks:

1. Are not heavily followed by Buffett and other professional investors.
2. Have the potential to double or more in three to five years.

The small-cap edge
With less competition chasing a larger pool of great potential investments, you've got a far better chance of finding and buying great stocks. That's why my colleagues Tom Gardner and Bill Mann have absolutely crushed the market as advisors of our Motley Fool Hidden Gems small-cap service. Each month, their methodology uncovers two companies that have slipped beneath the radar of the Wall Street juggernauts, and then gives you the chance to buy the stocks that the biggest investors simply cannot. It's a proven formula that can help you achieve your financial goals. Join us today to see for yourself.

At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric, Microsoft, and Bank of America. Microsoft and Pfizer are Inside Value selections. Bank of America is an Income Investor selection. The Fool has a disclosure policy.