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Warren Buffett steps down as CEO of Berkshire Hathaway after 60 years of nearly flawless service. His patience, observancy, and watchfulness made him one of the most efficient investors of all time and one of the richest men on Earth. However, Buffett is just a man, and the market is sometimes too unpredictable, even for him.Â
Buffett started investing when he was 11 in 1942, during the troubled times of World War II. Later, he became famous as an investor who made profits when the markets were down. Notably, Berkshire Hathaway gained profits when the other giants, like S&P, were down during the Trump tariffs turmoil this spring.
Value investment principle follower, who recommended being fearful when everybody else is greedy, Buffett believes there is no use in trying to time the market. Instead, his approach was to buy and watch what happens next.Â
“I never have an opinion about the market because it wouldn’t be any good, and it might interfere with the opinions we have that are good. If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. […] If you’re right about the businesses, you’ll end up doing fine.â€
Buffett became the chairman and CEO of Berkshire Hathaway in 1970. Now, when he is 94, he says lately it has become harder for him to remember names and read newspapers, so he decided to leave his position in the company.Â
Cryptocurrency enthusiasts know Buffett’s negative stance on crypto. Could he be mistaken about it? Although Buffett is called a sage or an oracle, he sometimes makes mistakes. Let’s digest Buffett’s biggest mistakes in Buffett’s career and see what we can learn from them.
In 2010, Buffett shared a story of buying “the dumbest stock†in his career. And it was buying the majority share of… Berkshire Hathaway in 1964. Buffett says he made it out of anger just to fire its then owner, Seabury Stanton, who failed to fulfill his part of the deal with Buffett.
At that time, Berkshire Hathaway was a declining textile manufacturing company closing one mill after another. Buffett noticed the company was selling its stocks at a discount every time it closed another mill, so he began to buy its stocks in 1962, hoping to sell them back to the company later.Â
In 1964, Stanton offered Buffett a tender to buy back his shares. They verbally agreed on a price of $11.5 per share. However, when Buffett saw a paper tender, he discovered it had an undercutting stock price of $11â…œ. It angered Buffett, and he bought more stocks to overtake the company and fire Stanton.Â
This untypically emotionally driven investment cost Buffett $100 billion if we trust his calculations. He said that instead of investing in a textile company, he could start an insurance company and make $200 billion instead of the $100 billion that he made as of the time of telling this story in 2010.Â
There are two major lessons we can learn from this story:Â
In 1951, at the age of 21, Buffett lost 20% of his net worth due to an unfortunate investment in the Sinclair gas station based in his hometown of Omaha, Nebraska.Â
Buffett’s Sinclair investment amounted to $2,000 of the $10,000 he had at that time. Sinclair had no competitive advantages when compared to Texaco, which was its main competitor in Omaha. Buffett tried to improve Sinclair’s business so hard that he even spent weekends working at the counter. Nothing helped. Given that, as of press time, Buffett’s net worth amounts to $158 billion, the opportunity cost of losing 20% is $31.6 billion.
Buffett didn’t invest in gas stations until 2017, when Berkshire Hathaway bought a minority stake in a leading truck stop/travel center giant, Pilot Flying J. Later, Berkshire Hathaway owned the entire company.Â
After the Sinclair gas failure, Buffett found what he thought was a potent company and owned it. His mistake made him more cautious, but after 66 years of looking for a better option, Buffett finally re-entered the gas station business and achieved moderate success.
We can extract a couple of lessons from this case:Â
The 1993 Dexter Shoes investment was a similar Buffett misstep. The company had a competitive advantage for a few years, but soon lost it. It cost Berkshire Hathaway’s shareholders $3.5 billion.
As mentioned above, Buffett believes it is impossible to time the market. When he felt that the energy company ConocoPhillips was doing great (which it was), he invested in it. As the oil prices went down, Buffett had to admit to multi-billion-dollar losses, the biggest in two decades. He acknowledged that investing in an energy company during the peak oil prices is a miscalculation.Â
The lesson here is that if the energy company is doing great during the oil price rally, it doesn’t mean it will still be profitable when these prices fall.
Buffett regretted that he invested in Amazon too late. He regretted not investing in Google when it was viable. Will the Omaha Oracle regret not investing in crypto? It doesn’t seem so.
As Buffett values companies with strong management and products, the decentralized world of cryptocurrency doesn’t meet his vision. In 2018, he called crypto “probably rat poison squared†and assured that the cryptocurrency craze would have a bad ending. He said that Berkshire Hathaway will never hold crypto.Â
Buffett stayed true to his promise. Almost. In the 2020s, Berkshire Hathaway invested $750 million in Nu Holdings, a Brazilian banking platform with a cryptocurrency service.Â
In 2022, he said something that could be a prime answer to the Bitcoin Race fueled by people like Michael Saylor:
“Now, if you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it?†Buffett reportedly told Berkshire Hathaway investors three years ago. “I’d have to sell it back to you one way or another. It isn’t going to do anything.â€Â
Time will show who’s right.Â
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
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