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PlusMarkets Analysis • 06/04/2021
Being an investor is practically synonymous with taking risks: the risk of investing at the wrong time or value. There is even the risk of completely missing out on a successful trade. Despite having a team of experts analyzing the market, and significant disposable capital, all investors make mistakes at one point or another—even icons like Warren Buffet.
The CEO of Berkshire Hathaway, who has been dubbed the «Oracle of Omaha,» has shown his stroke of genius many times. However, despite his investing prowess, Warren Buffet has been known to err.
In the course of his decades-long investment career, iconic investor Warren Buffet has not always been lucky. Even though his overall success is impressive, he has missed a few opportunities along the way, as he, himself, has repeatedly admitted.
His first mistake came early in his career when he bought the company that earned him his cult status as an iconic investor – Berkshire Hathaway. You wouldn’t call it a mistake now, as the company is a multinational conglomerate, but it wasn’t always so.
In 1962, Buffet bought shares in Berkshire, a struggling textile company, because he noticed a pattern in the stock’s price direction whenever the company would shut down a mill. He intended to sell his shares eventually, but when a tender between him and one of the managers went awry, he ended up buying out the company and firing the management instead. It was a spiteful and foolish move as it rendered Buffet a majority stakeholder in a failing business. In fact, he once calculated that running the textile business for another 20 years, instead of selling it immediately, cost him some $200 billion.
Buffet also learned the hard way with several other investments, such as acquiring shares in the British Tesco Group. By the fall of 2014, the Tesco group had issued four profit warnings and was knee-deep in an accounting scandal. During that time, Buffet’s company, Berkshire Hathaway, was still Tesco’s third-largest shareholder. In the end, Berkshire Hathaway suffered a loss of $444 million as a result of the share price collapse. In a letter to shareholders, Warren Buffet admitted that:
«An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.»
A mistake that probably still stings Warren Buffet is pulling the plug on Walt Disney too soon. In 1966, Berkshire Hathaway bought a 5% stake in Disney, worth $4 million. One year and a little under 50% increase later, Buffet sold his shares for $6.2 million because growth had slowed. That same 5% stake would be worth roughly $11 billion by 2020 calculations.
Historically, Warren Buffet has always advised investors to only invest in what they know. In this case, he, himself, missed out on a great opportunity due to a lack of knowledge. In a 2017 «Squawk Box» interview, he admitted, «Obviously, I should have bought it long ago because I admired it long ago,» he said. «But I didn’t understand the power of the model as I went along. And the price always seemed to more than reflect the power of the model at that time. So, it’s one I missed big time.»
For far too long, the star investor has been skeptical about tech stocks. He did buy into IBM, but the investment fell short of expectations. In particular, the ‘Oracle of Omaha’ deeply regrets that he did not buy Google shares. Shortly after the IPO in 2004, he was offered Google shares, but Buffet failed to recognize the company’s potential. «I blew it,» he admitted self-critically in 2017.
Similar can be said of Warren Buffet and Apple Inc. In 2016, he acquired shares in the company for the first time. Admittedly, at a time when Apple shares had just gone into reverse gear, but he missed out on the share price performance of the preceding years.
The fact that even hedge fund managers and investors who handle billions of dollars in assets do not always excel in the selection of their investments or their investment timing should come as a relief to many private investors. After all, even professionals can hardly foresee certain developments in the stock market. Still, in retrospect, experts advise investors not to be guided by emotions and to critically scrutinize their investment strategy once it has been decided, but not to panic and throw it overboard. What Warren Buffet’s successes and failures have taught us is that it is OK to fail, but it is necessary to learn from it.
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