Learning From Buffett’s Mistakes

Learning From Buffett’s Mistakes

While Warren Buffett’s annual letter to Berkshire Hathaway shareholders last month lacked any earth-shattering news, it was the shortest letter the legendary investor has written in 44 years and proclaimed that “Berkshire had a good year in 2022,” reports an article in Bloomberg. That could indicate Buffett beginning to wind his role down at the conglomerate he’s spent decades building; Buffett is, after all, 92 and his Vice Chairman Charlie Munger is 99.

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Unlike many other corporate bigwigs, Buffett is open about any perceived mistakes he’s made, even titling the letter on the 25th anniversary of taking over the company, “Mistakes of the First Twenty-five Years (A Condensed Version).” This year’s letter includes four uses of the word mistake, compared to five uses of the word by Amazon CEO Jeff Bezos in his entire 24 years of letters—three of which were an actual acknowledgement that he made one. Of course, not all of the mistakes that Buffett has pointed out over the years were his, and Munger “has always emphasized the study of mistakes rather than successes,” Buffett wrote in his 1985 missive, according to the article.

Berkshire shareholder letters always display a chart that compares the conglomerate’s stock price performance for each year since 1965 alongside the S&P 500’s total returns. Using that comparison, the amount of mistakes comes out to 0.33%—a third of the mistakes acknowledged in the letters. Buffett has always had a tendency to be more open about mistakes when his company is doing well, though analyzing his mistakes might be more educational if those that he made in the early days of Berkshire were available. However, while counting Buffett’s mentions of mistakes in his letters doesn’t predict the company’s short-term performance, there was a correlation between mistake mentions and the average outperformance over the next 5 years, Bloomberg found—roughly 0.32%. That’s not to say that Buffett’s heavy usage of the word mistake in the late 1970s had anything to do with Berkshire’s performance from 1979 to 1989, when it beat the S&P 500 by an average of 30% a year. But what investors can take away is that owning up to and learning from one’s mistakes can certainly pay off.

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