NEW YORK (TheStreet) -- Crowdfunding has become much more prominent after Facebook (FB) recently bought crowd-funded virtual-reality headset maker Oculus for $2.1 billion. In September of 2012, Oculus was financed by nearly 10,000 individuals for over $2 million through KickStarter, a crowdfunding platform.
The crowdfunding principle -- when individual investors finance a project over the Internet or at live events -- can result in more profitable investing in stocks, too. Let's look at Peter Lynch and Warren Buffett -- two of the best investors in history -- Andy Frankenberger, winner of the World Series of Poker, and Dom Einhorn, founder of crowdfunding site Born2Invest, as they talk about investing principles relevant to the new crowdfunding movement.
1. Lynch: The individual's advantage over the giants
Peter Lynch wrote in One Up on Wall Street that individuals sometimes have an advantage over institutional investors, as individuals can see what is selling at the local mall. If running shoes are hot, then buy stock in Nike (NKE). If no one shops at the mall, then short Sears Holdings (SHLD) and JC Penney (JCP).Individuals can select which crowdfunding projects to finance from this superior local knowledge. If the crowdfunding is for an area business that is not publicly traded but has lines out the door, then the individual waiting for the product knows it is doing well. 2. Buffett: Learning from investments in the little guys In an interview with Fortune, Warren Buffett stated that the investment he gained the most from was See's Candies, a $25 million buy back in 1972, not Coca-Cola (KO) or Wells Fargo (WFC), the two largest holdings of Berkshire Hathaway (BRK.A) (BRK.B). "The Oracle of Omaha" said, "It's one thing to own stock in a Coca-Cola or something, but when you're actually in the business of making determinations about opening stores and pricing decisions, you learn from it. We have made a lot more money out of See's than shows from the earnings of See's, just by the fact that it's educated me." It is much easier to learn from a crowdfunded investment than it is a Coca Cola or a Wells Fargo. The management should be more accessible. The facilities can be visited to watch the operations. Combining the advice of Peter Lynch and Warren Buffett here, crowdfunding offers the opportunity to both learn from and profit from an investment where the individual has an advantage over Wall Street.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV