Makes failures your teacher, NOT your undertaker.
I would like to mark down the failures that I could learn from others, especially from Warren Buffett, the Oracle of Omaha.
1. 1962. First invested in Berkshire Hathaway when it was a failing textile company. He thought he would make a profit when more mills closed, so he loaded up on the stock.
Later, the firm tried to chisel (out of sth: to get money or some advantage from sb by cheating them) Buffett out of more money. A spiteful Buffett bought control of the company, fired the manager and tried to keep the textile business running for another 20 years. Buffett estimated that this vindictive move cost him $200 billion.
Investment advice. Don't let emotions factor into financial decisions.
2. 1972. In his 2007 letter to shareholders, Buffett explained that he passed up the chance to purchase the Dallas-Fort Worth NBC station around the time he bought See’s Candies in 1972. He turned down the offer despite wholeheartedly trusting the person who made it, knowing there was excellent growth potential and it would require essentially no capital investment.
Reminiscing about the missed opportunity, Buffett pointed out that the station earned $73 million pre-tax in 2006, and at the time he wrote the letter, it was valued at $800 million.
Investment advice. To take advantage of an opportunity when it comes knocking.
3. 1975. He purchased Waumbec Mills -- another New England textile company.
“The purchase price was a bargain based on the assets we received and the projected synergies with Berkshire’s existing textile business.”
Investment advice. When making investments, if at first, you don't succeed, move on to a new strategy.
4. 1989. Back in 1989, airline stocks were gaining popularity and none more so than USAir. (The company changed its name to US Airways in the 1990s and later merged with Amercian Airlines.) Buffett bought into this airline, which had achieved tremendous revenue growth since its founding 50 years earlier.
Buffett purchased $358 million of USAir preferred stock with 9.25% dividend, mandatory redemption in 10 years, and right to convert into common at $60 a share. The investment quickly turned sour, as USAir didn't achieve enough revenue to pay the dividends due on his stock, and approached bankruptcy. Only down to a stroke of luck, Buffett was able to offload his shares at a small profit at a later date.
Buffett still regrets his first foray into the airline industry to this day. In a 2007 letter to shareholders, he stated that he bought the stock as a security, but would never do it again. The airline industry, in general, is fickle because of a lack of customer loyalty, massive competition, and customers' tendency to choose the cheapest option. As a whole, airline investments rarely produce positive returns for investors.
US Airways didn’t join the ranks of failed Warren Buffett stocks, but he does regret his 1989 purchase of $358 million worth of shares in the now-consolidated airline.
The shares never appreciated, but after weathering turmoil, Forbes reported that Buffett likely got all his principal and dividends back. Buffett credited the airline’s rebound to both his and Munger’s exit from the board and the arrival of CEO Stephen Wolf. He praised the latter for saving what could’ve been a very costly investment.
Investment advice. To research every investment before buying, so you know exactly what you're getting into —— whether you're a beginning investor or a longtime pro.
5. 1993. He purchased Dexter Shoe Co. for $433 million —— It cost investors $3.5 billion at the time, this was 1.6% of Berkshire Hathaway's net worth.
Investment advice. A company is at its best if it has a viable competitive advantage. If there’s no solid reason for customers to continue patronising a brand, it’s likely destined for failure.
6. 1998. The 1998 purchase of General Reinsurance (Gen Re) was initially not the best move for Warren Buffett’s investment strategy. Buffett turned things around, but he does have some regrets.
In his 2001 shareholders letter, he offered more insights on the reason Berkshire Hathaway took such a large initial hit on the purchase. This included enduring underwriting losses, overlooking the possibility of terrorist attacks and failing to realise Gen Re didn’t have enough in reserve to pay losses from old policies. Berkshire Hathaway realised $800 million in losses from the latter in 2001.
“After some early problems, General Re has become a fine insurance operation that we prize,” wrote Buffett in his 2016 letter to shareholders. “It was, nevertheless, a terrible mistake on my part to issue 272,200 shares of Berkshire in buying General Re, an act that increased our outstanding shares by a whopping 21.8 percent. My error caused Berkshire shareholders to give far more than they received (a practice that — despite the Biblical endorsement — is far from blessed when you are buying businesses).”
Investment advice. [1] To double-check the numbers and run them by several trusted advisors. You should always know what a worst-case scenario could cost you. [2] To fix your mistakes the right way and enjoy the rewards of success.
7. 2006. Buffett has owned a stake in the company since he bought ConocoPhillips shares back in 2006. Phillips 66 shares was spun-off from that company in 2012, giving Berkshire its first 27 million shares.
In his 2008 shareholders letter, Buffett wrote, “Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year.”
Buffett spent just over $7 billion on 85 million shares of ConocoPhillips, but its market value at the time of the letter was only about $4.4 billion.
Investment advice. To emphasise the importance of consulting people you trust before making a major investment. Sometimes, getting a different perspective is the best way to see the big picture.
8. 2007. Berkshire Hathaway purchased $2.1 billion of these Energy Future Holdings bonds that were needed to finance the TXU leveraged buyout.
“About $2 billion of the debt was purchased by Berkshire, pursuant to a decision I made without consulting with Charlie,” Buffett wrote, referring to Charles Munger, Berkshire Hathaway vice chairman.
Investment advice. Always run big decisions by a business partner or trusted confidant before diving in headfirst.
9. 2011. Berkshire Hathaway Inc. said Monday it will buy chemical maker Lubrizol Corp. for $9 billion, in its latest expansion into the industrial sector, where the billionaire investor has been seeking new avenues for growth.
In 2011, Warren Buffett and Berkshire Hathaway were under fire after it was revealed that David Sokol, then-chairman of several of the firm’s subsidiaries, pitched Lubrizol Corp. to Buffett as a potential takeover. The problem was that Sokol owned stock in the chemicals company.
Berkshire bought Lubrizol for roughly $9 billion, and Sokol earned a $3 million profit. Since he hadn’t disclosed his stock ownership to Buffett, this violated insider-trading rules.
Buffett didn’t realise his mistake immediately, but at the 2011 Berkshire Hathaway annual meeting, he admitted that he should have probed deeper with Sokol.
Investment advice. Not to be overly trusting. Ask more questions than you think are necessary, because you can't be too careful when your reputation is on the line.
10. 2012. Berkshire Hathaway owned 415 million shares of UK-based grocer Tesco at the end of 2012. In 2014, the grocer overstated its profits and shares tumbled.
“An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.” —— He admitted the move cost the company a $444 million after-tax loss.
Investment advice. To make decisions promptly.
11. 2015. In his 2015 shareholders letter, Warren Buffett highlighted the depth of Berkshire’s manufacturing, service and retail operations, noting that some businesses in the firm’s portfolio have poor returns, and he considers those serious mistakes.
“In most of these cases, I was wrong in my evaluation of the economic dynamics of the company or the industry in which it operates, and we are now paying the price for my misjudgments,” he wrote. “At other times, I stumbled in evaluating either the fidelity or the ability of incumbent managers or ones I later appointed.”
Investment advice. Not to jump into investments blindly. If you're not intimately familiar with a company, pass on it or seek advice from a trusted expert.
12. 2017. Buffett was asked why he’d never bought stock in Amazon. He admitted he didn’t have a good answer.
“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.”
Warren Buffett’s investments never include businesses he doesn’t understand, which is both good and bad. Backing companies blindly is not a smart move, but shying away from them isn’t wise, either.
Investment advice. Partnering with someone whose strengths differ from yours can help you avoid missing out on great opportunities.
13. 2017. Warren Buffett’s portfolio doesn’t include Google stock, and that’s something he regrets. At the 2017 Berkshire Hathaway annual shareholders meeting, he told investors he made a mistake by not purchasing shares in the tech giant years ago when it was getting $10 per click from Geico — a wholly owned subsidiary of Berkshire.
Buffett has shied away from tech stocks in the past because he didn’t understand their models. Still, he said he should have figured them out because he was effectively a client of the Google ad business.
Investment advice. Not to overlook investment opportunities right under your nose.
14. 2020. Warren Buffett says Berkshire Hathaway dumped all of its holdings in the airline sector, painting a grim picture of the industry that has been badly hurt by the COVID-19 pandemic.
“I was wrong about that business,” Buffett said, speaking on Saturday in Omaha, Neb., at Berkshire’s annual shareholder meeting, which was held virtually due to the deadly disease.
Buffett explained at the meeting that he thought he was getting roughly 10% of the four largest airlines for an attractive price. He also owned stakes in American Airlines Group Inc. and United Airlines Holdings Inc. Collectively, those airlines, represent some 80% of the passenger miles flown in the U.S., Buffett said.
But he determined recently that his decision, in light of the emerging pathogen, was ill-advised and he sought to unload his position: “I just decided that I’d made a mistake.”
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