Warren Buffett's 5 BIGGEST INVESTING MISTAKES

Warren Buffett's 5 BIGGEST INVESTING MISTAKES

1. Investing In Failing Businesses

• Did you know Warren Buffett bought
  Berkshire Hathaway as revenge?
• In 1964, Buffett had some shares in Berkshire, a failing textile business
• Berkshire's owner, Seabury Stanton, proposed to buy Buffett's shares
• A deal was agreed upon at $11.50 a share
• Seabury Stanton went back on the deal and offered a lower price
• This infuriated Buffett
• As revenge, he purchased a controlling stake & fired Stanton
• Buffett was then left with a large investment in a failing business
• Lesson: Being emotional doesn't help in investing

2. Overlooking Competition

• Berkshire bought Dexter Shoes in 1993 due to its high ROl
• But overlooked competition from cheaper
  Chinese imports
• The business eventually closed in 2001
• Buffett calls it the 'worst deal ever'
• Lesson: Research the industry before investing

3. Holding Onto Losing Stocks For Too Long

• In 2012, Berkshire owned more than 5% of Tesco - a struggling UK-based grocery chain
• Buffett had read the warning signs but didn't take decisive action
• Berkshire continued to hold a nearly 4% stake worth $1.7 billion
• Buffett delaying Tesco stock sale cost
  Berkshire heavily
• To put it in numbers, it cost Berkshire a loss of around $444 million
• Lesson: If you see the red flag, don't hesitate to exit a bad investment

4. Predicting Macro Trends

• In 2007, Buffett bet that the price of natural gas would rise
• He purchased bonds of Energy Future
  Holdings (EFH) worth $2.1 billion
• The price of natural gas, however, plunged from its 2007 levels
• Result - Massive losses to EFH stockholders
• Energy Future eventually declared bankruptcy in 2014
• In the end, Berkshire sold $2.1 billion worth of bonds in 2013 at a loss of $873 million
• Lesson: It is never a good idea to predict macro trends

5. Failing To Keep Learning

• Buffett has famously avoided investing in technology companies
• Reason: He didn't invest enough time in understanding their business
• Buffett has time and again confessed in his interviews that it was a mistake
• Lesson: Keep learning to optimise your investments