Throughout his lengthy career, Warren Buffett (Trades, Portfolio) has made many mistakes. He famously declared that the worst mistake he ever made was buying Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) in the first place. Previously, he has called this his "$200 billion" mistake.
Other mistakes he has made along the way include selling the 5% stake in Disney (DIS, Financial) he bought in his partnerships in 1966 and buying a large chunk of IBM (IBM, Financial) stock.
But according to Buffett, his biggest mistakes by far have been mistakes of omission. For example, in a talk with Microsoft (MSFT, Financial) founder Bill Gates (Trades, Portfolio) in 1998 at the University of Washington Business School, Buffett explained:
"I've made all kinds of bad decisions that have cost us billions of dollars. They've been mistakes of omission rather than commission. I don't worry about not buying Microsoft, though, because I didn't understand that business. And I didn't understand Intel (INTC, Financial). But there are businesses that I did understand--Fannie Mae was one that was within my circle of competence. I made a decision to buy it, and I just didn't execute. We would've made many billions of dollars. But we didn't do it."
Unfortunately, every investor will make mistakes. It is just part of the process. The problem is, the business environment is highly uncertain. Trying to predict which companies will succeed and which will fail over the next few decades is all but impossible. Even if a company is doing well today, it could suffer a significant drop-off in the next year.
Countless factors such as cyber-attacks, marketing campaigns or even oil spills can all jeopardize a company's potential, and they are unpredictable. The challenge for investors is not to avoid mistakes altogether but to learn from them when they occur and use that information to grow and develop.
This is just what Buffett has done over the years. To illustrate, we need to go back to 2017, to the Daily Journal (DJCO, Financial) annual meeting. At this meeting, one investor asked the company's chairman and Buffett's right-hand man, Charlie Munger (Trades, Portfolio), why he and Buffett had decided to get into the airline industry and buy Apple (AAPL, Financial) in Berkshire's portfolio. To this, Munger responded:
"[Buffett's] changed when he buys airlines and he's changed when he buys Apple. Think of the hooey we've done over the years about high-tech, 'we just don't understand it,' 'it's not our circle of competence,' 'worst business in the world is airlines.' And what do we appear in the press with? Apple and a bunch of airlines. I don't think we've gone crazy. I think the answer is we're adapting reasonably to a business that's gotten much more difficult...
And I don't think we have a cinch in either of those positions. I think we have the odds a little bit in our favor. If that's the best advantage we can get, we'll just have to live on the advantage we can get."
This appears to be clear evidence that Buffett has learned from his mistakes of omission in the past. By moving into different sectors, he has tried to grow and develop with the times.
This is one of the biggest mistakes the Oracle of Omaha has made in the past. Unfortunately, not realizing the world was changing meant he missed out on the tech and has caused Berkshire to make some questionable oil and gas investments in the past 15 years.
Still, it's easy to make these comments with the benefit of hindsight. The critical takeaway from Buffett's actions is that it's never too late to change. There's always something new to try and learn in the world of finance and business.
