I'll admit it, I've made my fair share of investment mistakes. Some have cost my family a lot of money (for us, anyway). One shook me to my core and made me reassess my entire investment approach (more diversification, less hubris).
But I'm not alone. None other than Warren Buffett, the CEO of Berkshire Hathaway (BRK.A 0.16%)(BRK.B 0.11%), openly discusses the mistakes he's made. Knowing that the great Oracle of Omaha doesn't always get it right helps me cut myself some slack, and you should do the same. Here are some wise words from Buffett to help you the next time you're kicking yourself.
Charlie's legacy
Charlie Munger was Buffett's business partner and lifelong friend, acting as a confidant and sounding board for roughly six decades at Berkshire Hathaway. Besides the down-to-Earth and folksy wisdom he offered Buffett (and the world), there was at least one more thing that his partner appreciated greatly. According to Buffett:
Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never -- never -- reminded me of my mistake.
The bolding on the second "never" was in the original, presumably to emphasize how important this act of omission was. Simply put, Munger understood that making mistakes is not only part of life, but, by extension, also part of investing. After all, humans tend to learn by making mistakes.
Buffett holds himself to account so you can learn
Most investors, including myself, don't have the benefit of an investing partner like Charlie Munger. But don't fear -- Warren Buffett has another bit of wisdom that can help you:
Over the years, I have made many mistakes. Consequently, our extensive collection of businesses currently consists of a few enterprises that have truly extraordinary economics, many that enjoy very good economic characteristics, and a large group that are marginal. Along the way, other businesses in which I have invested have died, their products unwanted by the public.
A well-balanced portfolio will probably have some winners, some mediocre investments, and some losers. Just like the one Buffett has built. And that's OK. The idea is to try to minimize mistakes, not to eliminate them entirely. If your goal was never to make any mistakes, you'd never buy any stocks at all! And, as noted, if you learn from your mistakes, you can better recognize potential errors before you make them.
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Sometimes even Buffett doesn't learn
Learning from mistakes is an important part of investing, but sometimes we all need more than one lesson before we actually learn. Don't beat yourself up if you find you've made the same mistake again, even if you've previously told yourself you'd "never do it again." Why? Once again we can look to Warren Buffett.
Buffett takes a dim view of investing in the airline industry. But he's done it more than once. In 1989, Buffett made a loan to US Airways that brought Berkshire preferred shares. He told investors more than once in the following years that he shouldn't have done it. And when he got out with a modest profit some nine years later, he said that he wasn't interested in buying airline stocks again.
Of course you can never say never in investing. And, despite the bad taste left by US Airways, Buffett jumped back into the sector in 2016, buying shares of American, Delta, Southwest, and United. However, when discussing the investment at the annual meeting in 2017 he noted that "you couldn't pick a tougher industry." Basically, he knew before going in that it could be a mistake and he did it anyway. And in 2020 -- the first year of the pandemic and stay-at-home orders that hobbled the travel industry -- he sold out of the position at a loss. Some lessons need to be learned twice, it seems, even for investment legends like Warren Buffett.
Buffett isn't perfect, and neither are you
The point here is not diminishing Buffett's record. The truth is, he's made his shareholders huge sums of money with his investment approach despite the mistakes he has made. You can be a successful investor too -- but only if you give yourself the leeway to be a human being. You'll make mistakes. Recognize that and accept it. Learn, of course. Diversify and hold on to cash you know you'll need in the short term, so that no one stock will cost you sleep. But don't let fear of doing the wrong thing stop you from investing, even if you make the same mistake more than once.
Remember, Buffett frequently talks about the mistake he made years ago sinking more and more money into a struggling textile business called ... Berkshire Hathaway. Look how that turned out.
