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The Day Warren Buffett Lost All His Money

Nov 15, 2017

Rahul Shah, Editor, Smart Contrarian

Warren Buffett is an affable guy...ever ready with an amusing anecdote to fit any situation.

Like the time when he was sixteen and went to the horse races. Narrated in his biography The Snowball, a teenage Buffett went to a nearby town to try his luck at the races.

He lost in the first race, but didn't go home after that.

He kept betting, and kept losing... Until he had lost over US$ 175 stripping his pockets just about clean.

Here's Buffett on how the rest panned out:

  • I came back. I went to Hot Shoppe, and I treated myself to the biggest thing they offered - a giant fudge sundae or something - and there went all the rest of my money.

    While I ate, I figured out how many newspapers I had to deliver to make up what I had lost. I was going to have to work more than a week to make back the money. And I'd done it for dumb reasons.

    You're not supposed to bet every race.

    I'd committed the worst sin, which is that you get behind and you think you've got to break even that day. The first rule is that nobody goes home after the first race, and the second rule is that you don't have to make it back the way you lost it. That is so fundamental, you know.

Buffett is still using the lessons he learnt that day.

In a Q&A session with students recently, he was asked about his strategy toward the threat of autonomous driving - ie self-driving cars - and the much higher level of safety this brings in.

It would likely mean a potentially big shrinkage in the insurance industry in which Berkshire has a large presence.

Buffett didn't seem too worried. He simply quipped, 'when you lose money at the horse races, you don't have to make it back at the horse races, and this applies to business.'

Losing Stocks

Have you ever lost big money on a stock, and kept holding on to it for dear life?

Waiting, patiently, for it to recover to earlier levels so that you can recoup your losses?

An Emotional Response to Losing Stocks Often Leaves Investors Holding On to Duds

If you have this kind of emotional response to a losing stock, you'll likely end up holding on to hopeless duds every now and then.

When actually what you should be doing is rationally reassessing the situation, dumping the losing stock if changed circumstances suggest so, and putting the remaining capital back to better use.

Remember Buffett's two rules.

  1. Nobody goes home after the first race. You may lose a race but you're still in the game. It becomes important to play the rest of it well.
  2. And, you don't have to make it back the way you lost it.

Good investing,

Rahul Shah (Research Analyst)
Editor, Smart Contrarian

Brain Food for the Day

The Realty Bubble of January 2008

One of the biggest mass stock market bubbles we've seen in the Indian markets was that of real estate stocks in 2007-08.

Many investors who bought into that euphoria of real estate stocks at the time saw mind-numbing losses in the months that followed.

As against Buffett's advice, bitten by these losses, many investors held on to these stocks blindly hoping to recoup the losses in them before they moved on.

Now, ten years later, they are probably still holding on to these duds...

If only they would have sat down and realistically weighed the situation, they would have realized it was a big mistake to put money in them to begin with. They would have then more clearly seen the grim prospects of real estate stocks ever going back to the goofy levels they saw in January 2008.

If you were open to making money any other way, you would have seen it wiser perhaps to remove what little remained in realty stocks, and put in other much better opportunities available at the time.

Many other sectors have since seen multifold appreciation. But not real estate. It remains down in the dumps and has never really come even remotely close to recouping the losses since the bubble days of 2007-08

As Buffett says, 'You don't have to make it back the way you lost it.'

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4 Responses to "The Day Warren Buffett Lost All His Money"


Nov 19, 2017

Right Now Which sectors You feel are over priced and should be strictly avoided as per say Valuation Perspective Or Which stocks ??

Like (2)

Mahmood Merchant

Nov 18, 2017

Do you gauge the popularity of a circulation by the number of readers who bother to make a comment on the write-up ? .... even a nice, polite 'Thanks' or 'Well done'

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Kannan K K

Nov 15, 2017

I could see the book availability in may try .....

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Nov 15, 2017


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