Warren Buffett’s Top Five Investing Mistakes

Warren Buffett, the Oracle of Omaha, is one of the most successful investors in history, the CEO of Berkshire Hathaway and one of the richest men in the world. On his way to becoming THE Warren Buffett, the Oracle of Omaha has made some mistakes. He owned those mistakes and shared them for us to learn. If you’re in this to build wealth, it’ll pay to take notes from five of Warren Buffett’s most significant investment mistakes:

1. Letting your emotions dictate your investment decisions

 – Berkshire Hathaway

Although he remains the CEO of the conglomerate to this day, Warren Buffett has said that Berkshire Hathaway was the dumbest stock he ever bought. Buffett first invested in Berkshire Hathaway in 1962 when it was a failing textile company. Sometime after that, the company wanted to squeeze out more money from him and Buffett, out of spite, bought control of the company and tried to keep it running for 20 years. In his estimate, that move cost him $200 billion.

• Lesson – Do not allow your emotions factor into your financial decisions. Investing is a matter of facts, not emotions. Always keep feelings of fear and impatience in check so that you don’t end up making more losses than gains.

2. Investing in a company that does not have a viable competitive advantage

 – Dexter Shoe Co.

In 1993, Warren Buffett bought $433 million worth of stock in a company called Dexter Shoes, because he believed the company had a durable competitive advantage. It turns out he was wrong; the company’s supposed competitive advantage disappeared after a few years, and this resulted in a loss of about $3.5 billion for shareholders. Buffett called this investment the worst deal he had ever made in his letter to shareholders in 2007. 

• Lesson – A company can make a lot of profit if it has a viable competitive advantage over the competition. If there are no distinct features making customers continue patronising a business, that business is likely going to fail.

3. Trying to time the market

 –  ConocoPhillips

In 2008, Warren Buffett was anticipating a boom in energy prices. He spent over $7 billion on 85 million shares of ConocoPhillips, a multinational energy corporation. He bought the stocks when oil and gas prices were near their peak, but later that year, energy prices crashed significantly, and Buffett suffered a multibillion-dollar loss on the investment. At the time he wrote his 2008 letter to shareholders detailing this fob, the market value of the stocks was about $4.4 billion.

• Lesson – When you try to anticipate trends and time the market you are more likely to run into trouble. Buy stocks in companies you believe in and are confident about.

4. Overlooking Opportunities

  –  Google

Fact: Warren Buffett’s conglomerate, Berkshire Hathaway, does not own stocks in Alphabet Inc, the parent company of Google. At the company’s annual shareholders meeting, Warren Buffett admitted that he had made a mistake by not investing in the tech giant years ago. Though he tends to steer clear of tech stocks because he has not taken the time to figure them out. For context: if Warren Buffett had invested $500 million in Alphabet Inc in 2013, it would be worth almost $2.5 billion today.

• Lesson – Ignorance is NOT bliss when it comes to investing. Do not be a close-minded investor and always be willing to learn about the new entrants into the market.

5. Taking revenue growth as an indicator of a successful business

  – U.S Airways

Being impressed by the high revenue growth that U.S Airways had attained at the time, Buffett purchased $358 million worth of shares in the company in 1989. The investment later took a wrong turn when the company did not realise enough revenue to pay the dividends. Buffett did end up getting his principal and appropriate profits, but he said that it could have become a costly investment.

• Lesson – Just because a company records massive revenue growth at any given time, does not mean that it is a successful or profitable venture. Some industries like travel, hospitality and retail make the bulk of their revenue from 1 or 2 months in a year. If the business is not managed well they will end up buried in debt for the remaining 11-12 months.

Remember, it is wise to learn from your mistakes, but it is smarter to learn from the mistakes of another. Especially when that person is the world’s foremost investor.

The above reflects the opinions of only the writers who are associated persons of Bamboo Systems & Technologies Ltd. and do not reflect the views of Bamboo Systems & Technologies Ltd. or any of its subsidiaries or affiliates. They are meant for informational purposes only. They are also not research reports. The third-party information provided therein does not reflect the views of Bamboo Systems & Technologies Ltd., or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions, and customers may lose money, including their original investment.