Small Investing Tips and Ideas for the Small Investor

Warren Buffett is a genius... and a billionaire, of course. Personal finance bloggers analyze his every word, and with good reason. Buffett's ascent to stratospheric wealth is impressive, inspirational and flat-out exciting to read about.

But it doesn't mean you should invest like him. Buffett benefited from his environment greatly; he came of age and built his empire after America emerged victoriously from a world war. We had the resources, infrastructure and culture necessary to innovate. Genius? Yes, to be sure. But he also won life's "right place and right time" jackpot. Had he been born in Japan around the same time, it is unlikely his trademark investing strategies would have made him the success he is today.

He was born in 1930 and joined the millionaire club in 1962; chances are you were born as recently as the 1980s or early 1990s! The world has fundamentally changed since Buffett made his first million.

Buffett's belief that you should invest in what you know made perfect sense in the fast-paced, growth-oriented America of his time. If you found a publicly held company that was well-managed, had an interesting product consumers would want, and bought stock in that company... chances are you would come out ahead, eventually.

This is what happened with Buffett favorites like Coca-Cola and Gillette: Coke makes great soda and Gillette makes great razors. Consumers arguably need, or at least very much desire, both of those products. And they keep buying them.

Unfortunately, the market for such products today is pretty much saturated. Everyone knows about Gillette. The big money has been made already.

Buffett's invest in what you know and like ideology no longer applies for the modern individual investor. At least not if you want to beat inflation, retire early, and enjoy the standard of living you deserve. It takes risk and specialized know-how to profit greatly in today's ultra-compartmentalized and complex economy. On top of that, America is not the boom town she once was... we are still mired in a staggeringly sad economic downturn that has put millions out of work, and has sent millions of jobs permanently overseas.

If you want to make the big money, look toward Warren Buffett's close friend and fellow billionaire, Bill Gates.

Gates did not make his fortune by investing in simple things everyone understood and enjoyed, like Coke and disposable razor blades.

In fact, he did very close to the opposite: he spent much of his free time in his school's computer lab, back before anyone knew what a personal computer was... or its potential for profit. If Gates were to explain to his friends what he was up to, chances are 9 out of 10 kids would give him a blank stare after a few sentences.

Personal computing was not cool, understood, or in-demand.

Instead, Gates' company created a demand. This took vision. It took risk. And it took an ultra-specialized strategy. Few people in Gates' generation grew up hoping to create the world's first commercially viable PC operating system... Most wanted to be astronauts, rock stars, artists, or politicians -- but Gates went after something most people did not have on their radar.

This is how you should invest. Find the next big thing, whether it be biotech, interactive media, next wave search engine technology, or aerospace.

If you aren't brilliant enough to do this yourself (I'm not), at least find the companies that are on the forefront of these industries, and invest whatever you can in them. Max out your Roth IRA and contribute automatically to your 401k starting at a young age: invest in the next Microsoft while you're in your twenties, or thirties.

Or you could take the Warren Buffett route: go buy a railroad. Most of us can't afford to do that. I have no doubt that Buffett will eventually make a hefty profit on his multi-billion dollar acquisition of BNSF's railroad.

But railroads aren't innovative enough. They were around during the Civil War. If you only have a small amount of capital, that small amount of money needs to work much harder for you. It needs to be invested in something much smarter.

Take risks. Find your niche as an investor. Maybe once you have a few billion in the bank, you can ask Buffett for advice. Until then, though, play hard and invest in what most people don't understand... yet.