Investing well isn't about getting 100% of your picks right. You don't even need to get more than 50% of them right. All you need to do is get a few great picks right. It is, therefore, unsurprinsing that even the best investors will often make mistakes - sometimes even big ones. In a 1998 speech at the University of Florida, Berkshire Hathaway's (BRK.A, Financial)(BRK.B, Financial) Warren Buffett (Trades, Portfolio) talked about some of his biggest blunders.
Buffett has not had too much success with airlines
Interestingly, Buffett believes that his biggest mistakes have been situations where he has failed to act when he could have acted - that is, when he had the opportunity to invest in a business that he understood, but didn't. You probably know that sinking feeling - seeing a company that lies within your own circle of competence do well, and kicking yourself for not investing at a good price when you had the chance. Of course, this does not apply in situations when you could not have realistically foreseen a business' success - if you're not a computer scientist, then you probably won't be able to make an informed decision about the tech sector.
Buffett has famously lost a lot of money investing in airline stocks - this was true back in the 1980s and 1990s, when he quipped:
"It happens every time. So I bought this thing. Nobody made me buy it. I now have an 800 number I call every time I think about buying a stock in an airline. I say, "I am Warren and I am an air-aholic". They try to talk me down"...But I bought it. And it looked like we would lose all our money in it."
Berkshire invested in US Air because the stock was attractively priced, but the problem was that the industry itself was in decline. Of course, as we now know, Buffett just couldn't give up on airlines - he later got involved with them again, but sold completely out in the first quarter of 2020.
Another mistake that Buffett admitted to was investing in Salomon Brothers - the famed investment bank and trading house that was wound up in 1998 after a string of scandals. Even though the business seemed like it was attractively priced, there were deep underlying issues that even an astute investor like Buffett wasn't able to spot. The important thing is to remember that mistakes are, by and large, inevitable, and that even the best investors commit them sometimes.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Why Joel Greenblatt Doesn't Like Leveraged Buyouts
- The Value Investor's Handbook: Identifying Fraud
- Warren Buffett: The Advantages of Investing in Small Companies​
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