Warren Buffett has many disciples in the global investing community. That’s hardly surprising, given that the billionaire super-investor has essentially laid down a blueprint for people to follow to build wealth.
One interesting Buffett-influenced investor is fund manager Guy Spier. In 2008, he participated in a $650,100 charity lunch with the Oracle of Omaha.
In his book, The Education of a Value Investor, Spier frequently references Buffett as a central influence. However, in a recent podcast, he shared how his investment approach would differ if he were starting out in his 30s with ‘just’ $1m.
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Here’s what he said.
Taking some risk
Now, to be clear, Spier manages more than $280m in his fund. He’s worth quite a bit. Therefore, $1m to him might be the equivalent of, say, £10,000 to a retail investor like myself.
Indeed, I’m trying to build towards a £1m (or $1.2m) portfolio, rather than starting off with that amount!
Nevertheless, the same principle applies, as it’s about growing a modest amount of money (relatively speaking) into something much larger.
Spier sensibly says that he would have living expenses covered and debt paid off before starting. That way, all focus can be on preserving and growing the portfolio through compounding rather than needing to draw upon it to survive.
With that sorted, he says he would want to take higher risks. Specifically, he would divide that sum into at least 10 shares. While they wouldn’t be too speculative so as to risk losing all the invested capital, each one would still “have a high enough probability of returning multiples of my money“.
Spier mentions making a couple of investments a year, with the aim of sevenfold returns from some over a five-year period.
Which type of stocks?
The fund manager says he would generally look at companies with a market cap under $1bn (£800m). Due to their smaller size, these have a better chance of becoming multibaggers, at least in theory.
Interestingly, Spier cites AIM companies listed in London as a place where he might look. These tend to be smaller enterprises, making AIM fertile waters to fish in for opportunities.
One I like
I agree with the general theme here. One AIM stock I hold is hVIVO (LSE: HVO), which has a market cap of just £133m.
This is a fast-growing contract research organisation specialising in testing infectious and respiratory disease vaccines and therapeutics through human challenge trials. These are where volunteers are exposed to pathogens in a controlled environment. hVIVO works with global pharmaceutical firms.
The share price has struggled lately, falling 33% in the past six months. This weakness appears related to the election of Donald Trump and concerns that vaccine research might be deprioritised, leading to fewer sales opportunities. This is a potential risk here.
However, in December, hVIVO signed an £11.5m contract with a top-tier global pharma client, then this week inked a £3.2m project, its largest standalone lab contract signed to date.
Meanwhile, the profitable company has reiterated its confidence in reaching £100m in revenue by 2028, up from £62m last year. And the best bit here is the valuation, with the stock trading at just 11.7 times this year’s forecast earnings.
From 19p, I reckon it could generate very nice returns.
