How To Learn From Your Financial Failures Like Warren Buffett
Written by
David Nadelle
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T. Woods
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At 93, Warren Buffett — the renowned co-founder, chairman and CEO of Berkshire Hathaway — has been in the investing game a very long time. From buying his first stock at the age of 11 to earning a net worth of $135.1 billion (at last count), the seventh richest person in the world has learned some hard lessons along the way.
“The Oracle of Omaha” has wealth building rules that are notorious even to the greenest inventor. Yet as we recently learned, it took years for Buffett to find success and decades to become one of the most influential business leaders the world has ever seen.
Experience comes by learning from your mistakes. Perfection is unattainable, but mistakes help you grow as a person and improve your performance and career. Buffett knows this better than anyone. Although he believes that “it’s good to learn from your mistakes. It’s better to learn from other people’s mistakes,” he’s approached his own career missteps with a mix of humility and humor.
Most importantly, he has moved past failures quickly, learning from them without dwelling on the negative or stagnating in shame. Here are eight examples of Buffett’s self-admitted financial mistakes and what you can learn from them.
1. Buying Berkshire Hathaway
Crazy, right? As the Motley Fool explains, Buffett bought Berkshire in 1964, when it was an unprosperous textile company. Although he was tracking the stock price and bought it when it dipped lower than he expected, he found himself as the owner of a textile company, something he knew nothing about. Keeping it as a textile company until 1985, Buffett eventually grew the firm into the conglomerate he runs today, but this early gaff taught him valuable lessons: research, don’t let your emotions dictate your actions and be willing to change or adapt your thinking when it comes to investing.
2. Buying Waumbec Mills
Although he has wisely stayed away from investing in New England textile companies for almost 50 years, but he bought his second (after Berkshire) in 1975 when it was a bargain. Grand plans for “the projected synergies” with Berkshire’s textile business never materialized and the mill closed down a few years later.
3. Buying Dexter Shoe
Describing it as “the most gruesome” mistake he made since Waumbec, Buffett failed to see how foreign competition would ruin his acquisition of Dexter Shoe, a company he had high hopes for when Berkshire bought it for $433 million in 1993. The company’s subsequent value plummet is one thing, but buying Dexter with Berkshire stock instead of cash compounded Buffett’s blunder, prompting him to declare, “As a financial disaster, this one deserves a spot in the Guinness Book of World Records.”
4. Not Buying Amazon
In 2017, Buffett admitted that he had Amazon in his sights for a long time but never chose to invest in it, both in 1994, when Amazon was starting, or in 1997, when it went public. While not exactly a mistake, it was a lapse in recognizing potential, and one that could happen to anyone. “I knew he (founder Jeff Bezos) would do the most with whatever idea he had. I had no idea it had this potential. I blew it,” Buffett said. Berkshire owns Amazon stock now, but it’s worth is a fraction of what it would’ve been.
5. Not Buying Google
Again, Buffett admired Google stock from afar, but never took the plunge. The reason being is that tech companies and their business models were outside the scope of his expertise, which a good lesson and a rule to invest by. Research and buying well-managed companies are keys to Buffett’s and Berkshire’s success. With Google, he wasn’t sure of the long-term growth trajectory, despite the fact that the company was doing great business with its advertising, advertising he was receiving a portion of through clicks on Geico, a Berkshire subsidiary. On this rare occasion, Buffett couldn’t see the forest for the trees.
6. Not Selling Tesco
Buying shares in the UK grocery chain (total investment in 2012 = $2.3 billion) quickly turned into a headache for Buffett, when he began to see weak points in the company. Despite selling 114 million shares over the course of 2013, he took too long to sell it off. “In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.” His “dawdling” would cost Berkshire $444 million, per CNBC Make It.
7. Buying Debt Bonds of Energy Future Holdings
Buffett has been outspoken about buying $2 billion of bonds of Energy Future Holdings Corp., created in 2007 from the $45 billion buyout of Dallas-based TXU Corp. But his biggest regret is that he neglected to run the decision by his long-standing partner and Berkshire vice-president, Charlie Munger. “About $2 billion of the debt was purchased by Berkshire, pursuant to a decision I made without consulting with Charlie.,” Buffett eventually threw in the towel, selling the bonds for a mere $259 million (leaving Berkshire with a $873 million pre-tax loss, per Reuters) but gaining a valuable lesson: if you have a trusted partner, confer with them on any big investment decision.
8. Not Researching Lubrizol Corp. Stock
In 2011, David Sokol, chairman of many of Berkshire’s subsidiaries, had pitched Buffett Lubrizol Corporation as a potential takeover target. However, he failed to inform Buffett neglected to inform Buffett that he owned stocks in the chemicals company. Berkshire came under fire but ultimately bought the company for $9 billion, making Sokol a tidy sum of $3 million from the sale. Lesson? Follow a strict due diligence process and never take someone’s word a face value without probing deeper.
Not even Warren Buffett gets things right all the time, but he owns his mistakes like a champion. But mistakes to Buffett are opportunities to learn something and approach difficulties with an open mind and from a new perspective, and that’s just another lesson you can learn from the great investor.
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