Warren Buffett and Charlie Munger explain the benefits of working with less capital during Berkshire Hathaway’s annual meeting in 2001.

Warren Buffet will forever be known as one of the greatest investors of our time. He made his first investment in the stock market at 11 years old, started multiple businesses by the age of 13, and he hasn’t looked back since.

Buffet created the bulk of his wealth through his company, Berkshire Hathaway, which invests in other companies. At the time of this article, he is worth about $69 billion.

When he was asked which approach he would use if he was investing a small sum of money, Buffet said he would use the same approach that he uses now which is to “[search for] businesses that are selling at a discount”.

He continues by mentioning that his best period as an investor was when he was just starting out. This is when he made his highest return average of his career of about 50% per year (which was about 37 points better than the Dow Jones).

The reason he was able to get such high returns when he had little money was that he was able to take more risks. As your capital increases, you need to become more and more conservative and careful with your investment strategy. Losing 5% of $10,000 is much easier to recuperate than 5% of $1 billion.

Not only that, but when you have multi-billions of dollars you need to invest, your pool options become smaller. The combination of fewer options and smaller risk tolerance increases the difficulty of investing.

Buffet even said, “If you are working with a small sum of money… and are willing to do the work, there is no question that you will find some things that promise very large returns compared to what we will be able to deliver with large sums of money.”

He did make it clear, however, that investing should never be easy. There are certain individuals on Wall Street who believe that they can make a lot more money easily by hedging other people’s money.

Buffet and Munger laugh as they talk about these people. “There’s too much chasing easy money,” Munger says.

The morale of the interview is that if you are investing with small sums of money, you are in a position to invest in opportunities in the stock market which almost guarantee returns that no investor with a larger sum could achieve, so long as you put in the hard work.

Risk comes from not knowing what you’re doing.“

Warren Buffet