Oracle
For as long as we can remember, Warren Buffett has been playing chess while others play checkers. But while his track record is unrivalled, there might be more to learn from the times he got it wrong.
Last weekend, Berkshire Hathaway’s ($BRK.B) shareholder meeting (aka Woodstock for Capitalists) saw the Oracle of Omaha himself share his views on the market, then sign off with a bombshell: he’s stepping down as CEO at year-end.
Warren Buffett downplayed the recent market volatility as ‘really nothing,’ but he didn’t seem to be a fan of tariffs either. He says the U.S. should ‘be looking to trade with the rest of the world’ and should do what it does best, while other countries do what they do best.
It’s the end of an era. And while his comments reflect decades of investment experience, wisdom comes from both good calls and bad calls. We thought we’d take a leaf out of his sometimes unconventional approach and explore the times when things didn’t go to his plan.
Kicking off with the US$433m Dexter Shoe Co. acquisition in 1993, which Buffett himself describes as a financial disaster worthy of a place in the Guinness Book of World Records. Dexter quickly lost its competitive edge due to cheap imports from countries like – you guessed it – China. The written-off investment’s real cost to Berkshire ended up being more than US$14b, because Berkshire paid with shares and not cash. Moral of the story? Never underestimate competition. (Also, cash is king.)
Berkshire also ended up taking an US$11b write-down on aerospace manufacturer Precision Castparts after the pandemic grounded demand. It turns out even precision comes with a margin of error. Buffett later admitted he ‘paid too much,’ proving that the king of value can occasionally miss the mark too.
Being a disciplined investor sounds great in theory, but Buffett admits it hasn't always served him perfectly. He passed on Amazon ($AMZN) because of its rich P/E ratio. He skipped Alphabet ($GOOGL) and Microsoft ($MSFT) because he felt the tech sector as a whole was outside his circle of competence. He now refers to these missed opportunities as ‘stupid mistakes.’ Sounds like the Oracle is not immune to a little FOMO on big tech.
The same holds true for selling too early. Buffett sold Wells Fargo ($WFC) and JPMorgan ($JPM) before the pandemic, at prices that have since doubled. But he won’t be too upset: Berkshire is still Bank of America’s ($BAC) largest shareholder, and netted a solid US$10.5b in cash from its recent sales.
One thing that stands out about Buffett’s mistakes is that he’s the one who draws attention to them. He calls it like he sees it, including in his self-assessment, and it’s clear that this had a hand in his success as an investor. In a time when the word uncertainty is thrown around more than a startup founder says ‘disrupt,’ here’s one piece of wisdom to take from Uncle Warren’s last AGM as Berkshire chief: ‘The world is not going to adapt to you, you have to adapt to it.’ Onwards.
