Mar 9, 2017

Size Matters – It’s Hard To Be Large


If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.  – Warren Buffett

Often people tell me that if they had more money investing would be easier. They imagine that with more wealth they could somehow find better deals. Now, living with more money might be easier, I won’t argue with that. But investing is funny in that it actually becomes more difficult the more you have to invest.

Consider the extreme but nonetheless illustrative example of Saudi Arabia. The Kingdom has fallen on hard times with the drop in oil prices. In an effort to “modernize” its economy the country is considering selling its nationalized oil company Aramco. Aramco is theoretically valued at as much as 2 trillion dollars. That’s $2,000,000,000,000 – a lot of zeros.

If Saudi Arabia wanted to invest 5% of this 2 trillion portfolio in U.S. real estate, that would be $100 billion of investments to make. Let’s assume further that Saudi Arabia wanted to do this using publicly traded U.S. Real Estate Investment Trusts (REITS). What kind of deal could it get there? Here are the five largest 5 U.S. REITS*:

To invest that $100 billion, Saudi Arabia would have to buy all of the top two U.S. REITS by market capitalization, and 20% of the third or 50% of all the top 5. A feat which is practically impossible without paying a significant premium to their current prices. In other words, Saudi Arabia’s massive wealth actually means it will have access to less and worse opportunities than smaller market participants like you and me. The point is that, counter intuitively, when it comes to investing, it pays to be small.

*REIT equity market capitalizations approximated as of Q2, 2016

Disclaimer: While the information presented herein is believed to be accurate, WhiteTree Investment Management LLC (WhiteTree) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. WhiteTree is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions WhiteTree makes in the future will be profitable or will equal the investment performance of the securities discussed herein. WhiteTree or its employees may have an economic interest in securities mentioned herein.

Apr 4, 2016

Almost Does(n’t) Count: Ackman Valeant – Buffett Salomon


  “Risk is more things can happen than will happen”  – Elroy Dimson “Many things can happen but only one will” – Howard Marks   Sometimes a thing creates an echo in your mind. That is to say you keep thinking about it, and while you know it’s important, you can’t quite externalize why. An […]

Sep 4, 2015

Risk Parity In The Financial Times


After reading quite a few articles making bad arguments against “risk parity” strategies, I wanted to write a post that elucidated my understanding of the thought process behind risk parity, while also pointing out the flaws in the arguments of some critics. I started writing something but it never came together quite the way I […]