Buffett has also made mistakes, even though he has amassed a huge fortune. Even the best people make mistakes when they have been doing something for decades. Buffett has been open about his mistakes. Not everyone admits them, even though it might make sense in the long run. One interesting aspect of Buffett's openness about his mistakes is the fact that he also considers mistakes to be situations in which he had enough information to make an investment decision, but he has not made it. I have not heard other investors talk about these mistakes. He talks about opportunity costs. He has not made many big mistakes considering the size of Berkshire, but there are those in history.
It is difficult to find Buffett's thinking errors in Berkshire's history since the purchase of See's Candy by its Blue Chip Stamps in the early 1970s. Before that, Buffett's main focus in purchase decisions was on price. Price is certainly an important factor, but it should not be the only thing that matters. One of Buffett's biggest mistakes in his investment history, the acquisition of Berkshire Hathaway, can serve as an example of a thinking error, and the purchase of Dexter Shoe in the early 1990s can be put in the same category.
In both cases, Buffett did not understand that foreign competitors would also collapse market prices in the United States. In the case of Berkshire, Buffett made another thinking error, because he did not understand that all the benefits of technological progress flowed to consumers. Both mistakes occurred at least in part because Buffett's thinking models assume that the United States has the best social system now and in the future. I personally consider this to be a partial thinking error, because even the best social system does not guarantee business success in all industries, especially against cheap manufacturers. Admittedly, this is splitting hairs, but it is difficult to find Buffett's thinking errors.
Buffett has also made mistakes when acting against his thinking models. Dexter Shoe is a good example, because Buffett has mentioned several times that the seller knows better the value of his own shares when the transaction is made with the company's shares. Dexter Shoe is arguably Buffett's worst buy ever, as its shares became worthless. Berkshire's shares went 1.6% in the wrong direction. This pot is currently worth about $6 billion. Buffett has used his own shares for other purchases, but this is probably his biggest mistake in this area.
Interpreting omissions as mistakes is an interesting idea. Can it be done and should they be counted? It's a difficult question, and I don't have an answer. At least Buffett and his cronies Munger count them as mistakes when there is enough information to make a decision. The biggest mistake Berkshire has made is buying too little Wal-Mart shares. According to Berkshire's calculations, the opportunity cost of all such mistakes would be $50 billion, according to a 2014 investor letter. By this logic, my own mistakes would have been expensive in terms of opportunity costs.
Torturing yourself with your mistakes is not wise, but acknowledging and analyzing them is a must for every investor, says Buffett. Yet he has rarely met CEOs who admit they made mistakes when making acquisitions. Most top management hides the financial consequences of their mistakes under restructuring or hides them in their accounting by keeping goodwill on the balance sheet for too long. Buffett and Munger urge you to learn from others' mistakes, because it will be cheaper.
Summary
As an investor, Buffett can be called Mr. Perfection, because it is difficult to get closer to perfect performance. Sure, he has made mistakes, but so have others. Buffett and Berkshire are one piece of evidence against the efficient market theory. So strong, in fact, that it is difficult to refute it mathematically. That does not mean that the markets are not reasonably efficient. Berkshire is also a good example of the need for patience when making super results through investing.
I can very likely agree with Buffett and Munger that Berkshire will no longer be able to make as good a result in the long term as it has done. How much the average earnings growth slows down is another matter. Berkshire has exceeded its managers' expectations recently. It will probably continue to do so for some time, even if Buffett dies. The company's operating culture is not based on one person, although I do believe earnings growth will slow down. I believe earnings growth will slow down a little more when Buffett leaves the playing fields of life.
Buffett's greatest loves in life have been corporate finance and investing. He has practically wasted at least half of his life, leaving many other important things, such as his family, to secondary roles. This approach to investing is only suitable for those who are equally passionate about the subject. By studying Buffett's work, you can certainly improve your returns, but hardly anyone can achieve his achievements without complete dedication. Everyone does what they see fit. If you want to study stock prices and financial matters all day long, that's fine. I personally recommend copying Buffett's patience and his method of selecting investment targets based on companies with a permanent competitive advantage.
