X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Lessons from Warren Buffett - LIX - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Lessons from Warren Buffett - LIX
Sep 28, 2015

In the previous article, based on Buffett's 2007 letter to shareholders, we discussed the various aspects that he looks for in a business before investing in them. Let's now move forward to his wisdom from the 2008 letter. Here, Buffett submits some of his mistakes, what he learned from them and some of his views on markets.

Modestly, Warren Buffett confessed the following mistakes to his shareholders:

  1. Buying a large amount of Conoco Philips without regard to timing.
  2. Buying two Irish banks without concern for fundamentals because he was attracted to their cheap prices.

On the first mistake, he wrote:

  • Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current US$40-50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

On the second matter, Buffett admitted:

  • I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent US$ 244 million for shares of two Irish banks that appeared cheap to me. At yearend, we wrote these holdings down to market: US$ 27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes 'unforced errors'.

Even the master can be swayed by emotion and overlook timing and fundamentals. However, what makes Buffett remarkable is his recognition of these mistakes - and the lessons he learns from them. Moreover, he understands that the mistakes make him a better decision maker: 'If you don't make mistakes, you can't make decisions.'

The lessons from this letter are simple:

Learn from your mistakes

Fail better. Learn from your investing mistakes. You won't become wealthy by repeating mistakes.

Don't overlook fundamentals

Keep in mind the valuations and management of the business when you buy a stock. More importantly, if the underlying stock is cyclical in nature, it is vital to ensure that you aren't buying at the cycle top.

Avoid market folly

Everything else is child's play if you can avoid allowing the clutter that markets throw at you every day to influence your decision-making. Rather than let it control your emotions, use volatility to your advantage. As Buffett says in this same letter: 'When investing, pessimism is your friend, euphoria the enemy.'

Rahul Shah

Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.

Equitymaster requests your view! Post a comment on "Lessons from Warren Buffett - LIX". Click here!

  

More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Of the Entire Market, Why You Will Love THESE Stocks the Most (Profit Hunter)

Sep 26, 2018

The juiciest and most profitable opportunities of the entire stock market can be found here.

This Repeating Pattern in the Market Offers Quality Stocks at Great Prices (The 5 Minute Wrapup)

Sep 26, 2018

Stocks of quality companies are falling in response to regulatory/government action. This offers a great buying opportunity.

Is the Government Actually Saving Jobs? (Vivek Kaul's Diary)

Sep 26, 2018

Every time more money is spent on a public sector enterprise to keep it going, thousands of youth across the country, lose jobs

More Views on News

Most Popular

Buffett Style Investing

A detailed peek into how Warren Buffett identifies the value of a stock, his concept of margin of safety and more.

My First Pharma Stock Recommendation!(The 5 Minute Wrapup)

Sep 21, 2018

This company has not only created a niche in the pharma space, it has done so profitably.

Oh Yes! This is the Best Trading Opportunity in Two Decades(Profit Hunter)

Sep 21, 2018

Getting ready to buy stocks once this correction is over? This private sector bank should be on a profit hunter's radar.

Outperformance of Strong Established Brands in the Indian Stock market(Chart Of The Day)

Sep 14, 2018

Strong Well established Indian Brands have comfortably outperformed the index in the decade post the global financial crisis.

How IL&FS Rating Downgrade Will Impact Your Mutual Funds...(Outside View)

Sep 17, 2018

PersonalFN explains the impact of IL&FS rating downgrade on mutual funds.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 26, 2018 03:37 PM

MARKET STATS