Another Sign You Shouldn’t Shadow the Oracle of Omaha: H.J. Heinz Company (HNZ)

But Heinz is going to grow. The question is by how much. It’s not likely that the company will grow much faster than 4% — which is higher than its long-term average growth in sales. So, at best, Buffett might get a 9% to 10% annual return on his investment.

That’s pretty good for the manager of a $250 billion company. But it’s not too great for individual investors. In fact, individual investors buying at $60.48 the day before probably were not making a great decision. If you had bought at $60.48, you’d be getting a 6% initial yield. Individual investors can do much better than that — there are plenty companies that have sustainable competitive advantages that offer a higher initial yield than 6%. Buying at $60 the day before the acquisition was announced would have produced a great windfall, but it probably was not a wise decision given the information available at the time.

Conclusion

Buffett paid a fair price for a good business. But the size of his company forbids him from looking in the nooks and crannies of the market to find the true bargains. Instead, he has to settle for mediocre returns — returns that might be slightly higher than the market over the long run.

Buffett can settle for a market return, but individual investors should not. Individuals can be more selective — they have a larger universe of companies to choose from. The Heinz acquisition is just another reason investors should stop trying to mirror Buffett and look for better opportunities in less-frequented parts of the market.

The article Another Sign You Shouldn’t Shadow the Oracle of Omaha originally appeared on Fool.com and is written by Ted Cooper.

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