Few investors of Buffett's stature have chronicled their own errors as openly, or as often, as he has in the Berkshire letters. He treats a mistake not as something to bury but as a public accounting owed to shareholders, naming the decision, the reasoning that failed, and the cost, usually with himself as the culprit. Read together, these passages form a running syllabus on humility, staying within one's competence, and avoiding the few big errors that matter most.
You do not adequately protect yourself by being half awake while others are sleeping. It was a mistake to buy fifteen-year bonds, and yet we did; we made an even more serious mistake in not selling them (at losses, if necessary) when our present views began to crystallize.
Any manager who consistently says "except for" and then reports on the lessons he has learned from his mistakes may be missing the only important lesson - namely, that the real mistake is not the act, but the actor.
Our consistently-conservative financial policies may appear to have been a mistake, but in my view were not.
Insurance offers a host of opportunities for error, and when opportunity knocked, too often I answered. Many years later, the bills keep arriving for these mistakes: In the insurance business, there is no statute of limitations on stupidity.
What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes.
Here, I would like to tell you that the mistakes I will describe originated with Charlie. But whenever I try to explain things that way, my nose begins to grow.
Our $358 million purchase of USAir preferred stock, on which the dividend was suspended in September. In the 1990 Annual Report I correctly described this deal as an "unforced error," meaning that I was neither pushed into the investment nor misled by anyone when making it. Rather, this was a case of sloppy analysis, a lapse that may have been caused by the fact that we were buying a senior security or by hubris.
Those who have watched my moves in this investment know that I have compiled a record that is unblemished by success. I was wrong in originally purchasing the stock, and I was wrong later, in repeatedly trying to unload our holdings at 50 cents on the dollar.
Even so, we make many mistakes: I'm the fellow, remember, who thought he understood the future economics of trading stamps, textiles, shoes and second-tier department stores.
I've made three decisions relating to Dexter that have hurt you in a major way: (1) buying it in the first place; (2) paying for it with stock and (3) procrastinating when the need for changes in its operations was obvious. I would like to lay these mistakes on Charlie (or anyone else, for that matter) but they were mine.
Buffett in his own words on camera. Transcribed from the interview; click through to watch the moment.
So I decided that I had made a mistake. That doesn't mean sometimes I make two mistakes. I'm gonna make a mistake when I buy and when I sell.
I was wrong on Tesco, for example, and I was late in recognizing that.