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Tata Capital > Blog > Wealth Services > Learn from Warren Buffet’s Biggest Investing Mistakes

Wealth Services

Learn from Warren Buffet’s Biggest Investing Mistakes

Learn from Warren Buffet’s Biggest Investing Mistakes

Do you, by any chance, think that the world’s 5th richest person never made any investing mistakes in his life? Sure, he did! He took ample risks, placed bets on wild card companies, and let his emotions get the better of him. He did all this, and because of that, you don’t have to.

You can steer clear of certain investing malpractices, thanks to him. While you may make investing mistakes of your own, here are a few you most certainly can avoid.

Top 3 Biggest Investing Mistakes of Warren Buffet’s Life

Let us begin with the biggest one first. Some also call it a fiasco, which led to the rise of Jeff Bezos, who beat Warren Buffet to become the world’s richest person.

1. Refused to Buy a Stake in Amazon

In a 2017 interview, Warren Buffet admitted to eyeballing but not investing in the multibillion-dollar conglomerate Amazon. Why?

Let’s hear it from the horse’s mouth, “I was too dumb to realise. I did not think Jeff Bezos could succeed on the scale he has… Obviously, I should have bought it long ago, because I admired it long ago. But I didn’t understand the power of the model as I went along. And the price always seemed to more than reflect the power of the model at that time. So, it’s one I missed big time.”

Safe to say, he let his ignorance get in the way of buying a stake in this behemoth organisation. Buffet’s policy of not investing in businesses he can’t fully understand backfired in this case. Safe to say, it’s not advisable to blindly invest in a business you know nothing much about, but to entirely shy away from it without trying to understand it, is also undesirable. 

Lesson learnt: keep your eyes and ears open. Ignorance is seldom bliss in business.

2. Let Emotions Fuel the Purchase of Berkshire Hathaway Textile Company

Not many know, but Warren Buffet’s biggest mistake, in terms of money wasted, was the purchase of Berkshire Hathaway in 1962. At that time, this textile company was in the doldrums, but Buffet applied his cigar-butt philosophy. Just as a cigar thrown on the street still has a few generous puffs left, he thought Berkshire Hathaway, too, had some potential.

So, a young Warren Buffet began purchasing their stock in tranches. It was then in 1964 that the owner of the company, Seabury Stanton, expressed an interest in buying Buffet’s shares at 11 dollars and 50 cents apiece. 

However, when the official offer letter came, the price was diluted down to 11 dollars and 32 cents apiece. This angered young Buffet enough to purchase a controlling stake in Berkshire Hathaway only to fire Seabury Stanton.

Unfortunately, the company continued flailing, and Buffet ended up carrying its burden for another 20 years. By the end of this fiasco, Warren Buffet calculated a loss of a staggering 200 billion dollars simply because he let his emotions cloud his business sense.

3. Overestimating Revenue Growth of US Air

In his 2007 letter to his shareholders, Warren Buffet stated that sometimes certain businesses, in this case, an aviation company, looked good in terms of acquiring revenue growth. But what businessmen don’t see is that in exchange for revenue growth, they also require gargantuan capital investments.

As a result, business owners keep investing funds and waiting for the calculated revenue growth, which does not come, given a long gestational period. This happened to Warren Buffet when he bought stock in US Air in 1989. Given the high uncertainty linked to the aviation sector, the shares he held never appreciated.

This was when Buffet said, “Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.”

This goes to show that there is no substitute for careful and in-depth research before buying into any investment.

Parting Thoughts

So, you see, even the greats of the business world are vulnerable to financial blunders. However, with timely and seasoned guidance, you can make sound choices regarding your personal investment.

If you are looking for such mentorship, turn to Tata Capital Wealth. We offer expert financial guidance after critically considering your financial psyche, investment horizon, risk appetite, and various other personalised factors.

To grow your wealth through the right investments, reach out to us today!

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