Warren Buffett is one of the legends of stock investing.
But that doesn’t mean he hasn’t made mistakes over the years. Anyone with 50+ years of investing will make mistakes, as even he freely admits in his annual letters.
In the past he’s stated that, thankfully, most of his blunders were in small positions that didn’t impact the overall portfolio in a big way.
However, the goal is to learn from those mistakes so that you become a better investor.
And whose mistakes are better to learn from than Buffett’s themselves?
Buffett’s Biggest Mistakes
1) Ignoring Bad Company or Industry News
Unless you work in an industry, you might not always know the dynamics and spreadsheets don’t always tell the full story.
Buffett has often made the wrong call on companies. One of his largest mistakes was on Tesco, the British supermarket retail chain.
At the end of 2012, Berkshire Hathaway spent $2.3 billion buying 425 million shares. This was a big position in Berkshire’s portfolio. But by 2013, Buffett began to have questions about the management.
He started selling shares but sold just 114 million, making a profit of $44 million. He didn’t sell quick enough. By 2014, the management situation began to worsen and the stock dropped further. By the time Berkshire sold all of its shares its after-tax loss on the investment was $444 million.
It ended up ranking as one of the top 4 largest investment losses at Berkshire in the prior 50 years.
As Buffett said in the 2014 Annual Letter:
“In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”
Lesson: If bad news is out there about a company or an industry, don’t ignore it. Sometimes those who move the quickest to correct a mistake are the best off.
Continued . . .
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Zacks' Biggest Hidden Gems
We have uncovered some rare companies that are "discounted" by 25-50% or more. Wall Street has overlooked or ignored these value stocks, but Zacks Rank timing enables us to catch them just as their true worth is starting to get recognized.
Now you can ride them to full potential whether it takes a few months or several years. For example, this portfolio has closed gains of +167.8%, +89.5%, and +142.8%.
See Zacks' latest value recommendations >>
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2) Buying at the Top
Warren Buffett is a value investor. He tries to buy assets when they’re under valued compared to the rest of the market.
Sometimes, however, Berkshire has paid a premium for an asset because Buffett saw strength in the business model going forward. One of those was the price paid for Burlington Northern railroad.
It was far from cheap when Berkshire bought it but the investment has paid off.
Other investments weren’t so lucky. 2008, in particular, saw some big investing mistakes.
Without consulting Charlie Munger or anyone else, Buffett bought a big stake in energy giant ConocoPhillips, just as crude prices were near their cycle peak.
Berkshire ended up with a 5.7% share of Conoco at the cost of $7 billion. By the time of the 2008 annual letter, that investment was worth just $4.4 billion, or a loss of nearly $3 billion.
Crude had plunged to $40-$50 a barrel, wiping out most of the energy investments at that time.
While Buffett believed that oil prices would be higher in the future, he still blamed his terrible timing for the losses.
He made the mistake of buying at the top.
Lesson: Be careful when buying in cyclical industries, whether it is energy which is at the mercy of oil and natural gas prices, or the semiconductors, which also see big swings in earnings due to supply and demand dynamics.
3) Popular Large-Cap Stocks Aren’t Always Great Investments
Recently, Berkshire sold off all of its remaining shares in technology giant IBM.
Originally bought in 2011, Berkshire spent $10.7 billion, buying at the average price of $170 per share, to take a significant stake in the company.
But it never really worked out. In 2016, shares fell as low as $125.
Buffett shrugged it off in interviews saying the company never lived up to expectations so he was changing course.
What did he buy instead?
Apple.
And that investment has more than made up for the mistake of buying IBM.
Lesson: Sometimes an investment just doesn’t work out. It’s okay to change directions and invest in another company, even in the same industry.
How Can You Avoid Some of Buffett’s Mistakes?
Know what you are buying and why. Be prepared to change course if industry or company conditions change.
The management you trusted, for instance, may not be the management for forever. CEOs change. Strategy changes. Know the facts and be prepared to change with it.
Have a diverse portfolio. Berkshire Hathaway has been able to weather most of the mistakes because it has many holdings which can pick up the slack.
Don’t overpay for a stock. Value investors should buy value stocks. Have patience and buy in at an attractive valuation.
How to Make Money on Buffett's Success
Let's turn this around. Remember that mistakes aside, Buffett is arguably the greatest value investor of his generation.
His essential secret? As he puts it, "whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
I feel the same way, and that's what drives a portfolio I'm managing called Zacks Value Investor.
We look for stocks priced at "discounts" of 25%, 50%, and more. Our strategy combines value metrics with Zacks Rank timeliness to catch these hidden gems just as Wall Street begins to recognize their true worth.
You see, it's not enough to simply find stocks that are undervalued. We want to buy them as they begin their upswings, and then ride them for months or years until they reach their full growth potential.
That's how we've closed gains of +167.8%, +89.5%, and +142.8%.
Now would you like to look inside the portfolio and see the value stocks it recommends today?
You're welcome to do so, and as an added bonus, you can also download Invest Like Warren Buffett free. This Special Report reveals 3 key principles that guide Buffett's search for companies to buy. Even better, it spotlights 5 stocks for you to consider buying today.
Important: This unique opportunity ends Sunday, September 9.
See Value Investor Stocks and Download the Buffett Report >>
Good Investing,
Tracey
Tracey Ryniec, as Zacks Value Stock Strategist, directs our Value Investor portfolio.
Image: Bigstock
How to Avoid Warren Buffett's Mistakes
Warren Buffett is one of the legends of stock investing.
But that doesn’t mean he hasn’t made mistakes over the years. Anyone with 50+ years of investing will make mistakes, as even he freely admits in his annual letters.
In the past he’s stated that, thankfully, most of his blunders were in small positions that didn’t impact the overall portfolio in a big way.
However, the goal is to learn from those mistakes so that you become a better investor.
And whose mistakes are better to learn from than Buffett’s themselves?
Buffett’s Biggest Mistakes
1) Ignoring Bad Company or Industry News
Unless you work in an industry, you might not always know the dynamics and spreadsheets don’t always tell the full story.
Buffett has often made the wrong call on companies. One of his largest mistakes was on Tesco, the British supermarket retail chain.
At the end of 2012, Berkshire Hathaway spent $2.3 billion buying 425 million shares. This was a big position in Berkshire’s portfolio. But by 2013, Buffett began to have questions about the management.
He started selling shares but sold just 114 million, making a profit of $44 million. He didn’t sell quick enough. By 2014, the management situation began to worsen and the stock dropped further. By the time Berkshire sold all of its shares its after-tax loss on the investment was $444 million.
It ended up ranking as one of the top 4 largest investment losses at Berkshire in the prior 50 years.
As Buffett said in the 2014 Annual Letter:
“In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”
Lesson: If bad news is out there about a company or an industry, don’t ignore it. Sometimes those who move the quickest to correct a mistake are the best off.
Continued . . .
------------------------------------------------------------------------------------------------------
Zacks' Biggest Hidden Gems
We have uncovered some rare companies that are "discounted" by 25-50% or more. Wall Street has overlooked or ignored these value stocks, but Zacks Rank timing enables us to catch them just as their true worth is starting to get recognized.
Now you can ride them to full potential whether it takes a few months or several years. For example, this portfolio has closed gains of +167.8%, +89.5%, and +142.8%.
See Zacks' latest value recommendations >>
------------------------------------------------------------------------------------------------------
2) Buying at the Top
Warren Buffett is a value investor. He tries to buy assets when they’re under valued compared to the rest of the market.
Sometimes, however, Berkshire has paid a premium for an asset because Buffett saw strength in the business model going forward. One of those was the price paid for Burlington Northern railroad.
It was far from cheap when Berkshire bought it but the investment has paid off.
Other investments weren’t so lucky. 2008, in particular, saw some big investing mistakes.
Without consulting Charlie Munger or anyone else, Buffett bought a big stake in energy giant ConocoPhillips, just as crude prices were near their cycle peak.
Berkshire ended up with a 5.7% share of Conoco at the cost of $7 billion. By the time of the 2008 annual letter, that investment was worth just $4.4 billion, or a loss of nearly $3 billion.
Crude had plunged to $40-$50 a barrel, wiping out most of the energy investments at that time.
While Buffett believed that oil prices would be higher in the future, he still blamed his terrible timing for the losses.
He made the mistake of buying at the top.
Lesson: Be careful when buying in cyclical industries, whether it is energy which is at the mercy of oil and natural gas prices, or the semiconductors, which also see big swings in earnings due to supply and demand dynamics.
3) Popular Large-Cap Stocks Aren’t Always Great Investments
Recently, Berkshire sold off all of its remaining shares in technology giant IBM.
Originally bought in 2011, Berkshire spent $10.7 billion, buying at the average price of $170 per share, to take a significant stake in the company.
But it never really worked out. In 2016, shares fell as low as $125.
Buffett shrugged it off in interviews saying the company never lived up to expectations so he was changing course.
What did he buy instead?
Apple.
And that investment has more than made up for the mistake of buying IBM.
Lesson: Sometimes an investment just doesn’t work out. It’s okay to change directions and invest in another company, even in the same industry.
How Can You Avoid Some of Buffett’s Mistakes?
Know what you are buying and why. Be prepared to change course if industry or company conditions change.
The management you trusted, for instance, may not be the management for forever. CEOs change. Strategy changes. Know the facts and be prepared to change with it.
Have a diverse portfolio. Berkshire Hathaway has been able to weather most of the mistakes because it has many holdings which can pick up the slack.
Don’t overpay for a stock. Value investors should buy value stocks. Have patience and buy in at an attractive valuation.
How to Make Money on Buffett's Success
Let's turn this around. Remember that mistakes aside, Buffett is arguably the greatest value investor of his generation.
His essential secret? As he puts it, "whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
I feel the same way, and that's what drives a portfolio I'm managing called Zacks Value Investor.
We look for stocks priced at "discounts" of 25%, 50%, and more. Our strategy combines value metrics with Zacks Rank timeliness to catch these hidden gems just as Wall Street begins to recognize their true worth.
You see, it's not enough to simply find stocks that are undervalued. We want to buy them as they begin their upswings, and then ride them for months or years until they reach their full growth potential.
That's how we've closed gains of +167.8%, +89.5%, and +142.8%.
Now would you like to look inside the portfolio and see the value stocks it recommends today?
You're welcome to do so, and as an added bonus, you can also download Invest Like Warren Buffett free. This Special Report reveals 3 key principles that guide Buffett's search for companies to buy. Even better, it spotlights 5 stocks for you to consider buying today.
Important: This unique opportunity ends Sunday, September 9.
See Value Investor Stocks and Download the Buffett Report >>
Good Investing,
Tracey
Tracey Ryniec, as Zacks Value Stock Strategist, directs our Value Investor portfolio.