Spotlight: Making Mistakes in Investing

When it comes to investing in the stock market, making mistakes is business as usual. But what hurts investors is either trying to avoid all mistakes, or not learn from the past ones.

A life spent making mistakes is not only more honorable but more useful than a life spent doing nothing.~ George Bernard Shaw

IBM and Coke represent two of Berkshire Hathaway’s three biggest investments (the biggest being Wells Fargo). However, disappointing earnings announcements at these companies cost Warren Buffett a few billions last year.

These losses added to a recent rough patch for Buffett, who slashed Berkshire Hathaway’s stake in British retailer Tesco, also last year. He described buying into the stock as a “huge mistake” after the company announced another earnings disappointment and, over that, a £ 250 million accounting scandal.

The media was rife with these big “mistakes”, especially Tesco, and was surprised how the world’s best investor could commit them. But then, Tesco isn’t Buffett first mistake and it won’t be his last mistake either.

He started making mistakes with Berkshire Hathaway, the textile company he bought in the 1960s, and has built up a list over the years. So Buffett has…

• Bought a lousy business (Berkshire’s textile business)
• Bought a stock at the wrong price (ConocoPhillips)
• Confused revenue growth with a successful business (US Air)
• Invested in a company without a sustainable competitive advantage (Dexter Shoes)
• Misjudged the company’s prospects (Energy Future Holdings)
• Trusted the wrong people (Salomon Brothers)

It is easy to get carried away counting the mistakes, questionable decisions and blunders Buffett has made over the decades.

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