Buffett on Making Mistakes

Warren Buffett is thought of as the most successful investor in the world and with a brilliant mind and natural talent for it, he is constantly being looked toward for advice in the field. He freely offers it up in most cases, especially during his annual shareholder meetings for Berkshire Hathaway, when much of the day is spent with Q and A discussions.

Beginners in investing and the stock market are typically a little uneasy, since if you make too big of a mistake chances are it will literally cost you. So, it isn’t surprising that people look to the Oracle of Omaha himself when wondering how to avoid making investment mistakes

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need.”

Since each investor calculates a company’s intrinsic value a little differently, there will be some variance in following this advice but the basis remains the same: If you’re looking at a high risk business, you should be buying it at a lower price. If the business you’re looking to invest in is ultimately stable, you’d be able to spend a little bit more without worrying about losing your money— or at least keeping your losses minimal.

“There are a lot of mistakes that I’ve repeated. The biggest one is being reluctant to pay up a little for a business that I knew was really outstanding… when there are businesses that you can understand and that are attractive and you don’t do anything about them.. and I’ll probably keep making that mistake… Most of our mistakes have been matters of omission rather than commission.”

Buffett has always been a huge supporter of investing in what you know. He firmly believes that by focusing on what you have a knack for, rather than trying to spread yourself then, will generate a lot better results than trying to create an extremely diverse portfolio. In fact, understanding the type of business you are investing in is Buffett’s first filter to investing, and the fourth happens to be looking for a good price. While Buffett does warn you of prices that are “too good to be true” and urges you to shop for fair prices, it is important to remember to take a few chances on your journey. If Warren Buffett, the second richest man in the world, has a big regret for not taking more chances, you should definitely think twice before rejecting that company that is successful and growing, but a little more than you’d like to pay. Don’t be too scared to “pay up a little,” and keep in mind that even the Oracle of Omaha has regrets.

 

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