“I like to study failure. We want to see what has caused businesses to go bad, and the biggest thing that kills them is complacency. You want a restlessness, a feeling that somebody's always after you, but you're going to stay ahead of them. That restlessness — that tomorrow is more exciting than today — you have to have it permeate the organization.”
- Warren Buffett, 2013 at The Coca-Cola Company’s AGM
Warren Buffett is a legendary investor and businessman with a terrific record for a long time. He and Charlie Munger built Berkshire Hathaway Inc. from a sick textile company to a holding company. The market value of Berkshire nears $900 billion as of March 2024.
Buffett on his long journey of investment made a lot of mistakes. The mistakes are eminent on the investment journey. The trick is to recognize them promptly and correct them. It is always advisable to learn from other’s mistakes would cost less!
The mistakes you would recognize and learn the lessons are –
1. Own biases
2. Correctly valuing a company’s future economics
3. How to identify the competitive enduring strength?
4. Market euphoria
5. Capital allocation
6. Opportunity cost
7. Mistakes of omission – “Sucking the thumb”
Buffett evolved from a trader, investor, and businessman into an empire builder. The success he achieved is remarkable and unique in many ways. It is amazing to achieve this kind of success in one’s lifetime. It puzzles me more, knowing the kind of mistakes made on the way. There are many mistakes, and a few are major. The big ones are omissions, not commissions. It means he did NOT buy the investments he liked and understood.
Buffett also made mistakes in accessing the economic characteristics of a business, like in the airline business. Sometimes, he traded in the commodity business when the cycle was at its peak. Like ConocoPhillips, an oil & gas exploration and production company. This is because humans are easily carried away in a booming market, as in 2007. A few mistakes involve not acting quickly enough, the effect of over-caution or procrastination. This caused him to miss out on a few wonderful opportunities. For example, Google.
Buffett and Munger together built a strong filtering mechanism in ‘decision-making’. They were quick to say “no” most of the time. This behavior offended many people. Even then, they made many mistakes. These mistakes were due to Buffett’s own biases and emotions. They include too much optimism and pessimism. In a few cases, he failed to do a holistic business analysis and recognize the economic outcome. The mistakes are both of omission as well as in commission categories.
Despite these mistakes, Buffett and Munger built a business empire from scratch. They were open and honest about their mistakes. They were learning machines. They used these experiences to improve their investment approach over time.
Have a Joyful Journey!
Comments