The most endearing aspect of Warren Buffett’s personality is his utmost humility. Though he is the most successful investor in the World, he delights in talking about the numerous mistakes that he has made during his long and illustrious career. This is in sharp contrast to the attitude of lesser individuals who take umbrage at having their mistakes pointed out.
In an old youtube interview, Warren Buffett talks (@2.25) of the several mistakes of omission and commission that he and Charlie Munger committed which cost Berkeshire several billions of dollars.
Warren offered advice on how to deal with such mistakes:
“… talking about learning from mistakes … We don’t spend any time looking back … We never look back … we figure that there’s so much to look forward to that it makes just no sense thinking about what we might have done … it just doesn’t make any difference … you’ve got to live your life forward … you could learn something perhaps from the mistakes … the big thing to do is to stick with the businesses you understand …”
In a letter to the shareholders of Berkeshire Hathaway that he wrote in 1989, Warren Buffett talked about the “Mistakes of the First Twenty-five Years” that he and Charlie Munger had committed. “.. it’s a good idea to review past mistakes before committing new ones” Warren said tongue-in-cheek. The comments made by Warren about his mistakes are really enlightening.
Interestingly, Warren Buffett also said this:
“We hope in another 25 years to report on the mistakes of the first 50. If we are around in 2015 to do that, you can count on this section occupying many more pages than it does here.”
Well, today, it is 25 years and Warren Buffett does not disappoint. His shareholders’ letter of 2014 (which was released yesterday) sets out the several mistakes that he & Charlie Munger committed.
Interestingly, Warren calls his purchase of Berkeshire Hathaway and his refusal to sell it in May 1964 because of a dispute with the buyer over a few cents a “monumentally stupid decision”.
Warren also talks of his “big mistakes” of omission, where he made “huge errors” “in not making a purchase, including not purchasing Walmart stock when that was sure to work out enormously well”. “The errors of omission were of much importance. Berkshire’s net worth would now be at least $50 billion higher if it had seized several opportunities it was not quite smart enough to recognize as virtually sure things”, Warren says in a rueful tone.
Warren also talks of the “serious mistakes” he made in his “job of capital allocation”. “I was not misled: I simply was wrong in my evaluation of the economic dynamics of the company or the industry in which it operates” he adds.
“Even with Charlie’s blueprint, I have made plenty of mistakes” Warren says and singles out Dexter Shoe as one where a loss of $433 million was suffered. “GAAP accounting, however, doesn’t come close to recording the magnitude of my error” he adds.
“As a financial disaster, this one deserves a spot in the Guinness Book of World Records” Warren says tongue-in-cheek.
Tesco comes in for special mention. “I’m embarrassed to report … I made a big mistake with this investment by dawdling” Warren says and points out that the after-tax loss from this investment was $444 million.
Interestingly, while Warren Buffett censures himself for selling Tesco late (“My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior “thumb-sucking.””), his decision to sell itself came in for great criticism from informed investors. “Is Warren Buffett Making A Second Mistake By Selling Tesco” asked a commentator on Fool.com. He argued that Warren had “betrayed his own philosophy” by not being “greedy when others are fearful” and “turning his paper losses into real losses”.
Of course, as of date, we cannot fault Warren Buffett because Tesco has lost nearly 50% in 6 months and 25% in 3 months. So, Warren’s decision to cut his losses appears to be a sensible one at least as of now.