Warren Buffett is arguably the most successful investor to have ever lived. Although much is said about his frugal behaviors and knack for saving money where others would spend, the reality is that Buffett built his fortune by making smart investment decisions, and by learning from his mistakes along the way.
Much of Buffett’s investment advice has been shared with beginner investors, but not much focus is placed on his mistakes. Unsuccessful investment decisions are just as important as successful ones in term of learning the ropes of the market.
Here are two important Warren Buffett mistakes that can serve as lessons as you get started in the investment world.
Warren Buffett Used to Look for Investments with Strong Asset Backing
Many successful investors focus on ideas rather than statistics and financial figures. Warren Buffett started his career looking for companies that had strong asset backing. This was due to his strong leaning towards the teachings of investor and economist Benjamin Graham.
When Buffett learned to undo this mistake and diversify into businesses that had fewer assets and more potential, he made some impressive gains. Early investments in American Express and Walt Disney turned out to be hugely profitable for Buffett. In the mid-sixties, these companies were considered risky investments by many of the most esteemed analysts.
The takeaway? Asset portfolios are important when looking for companies to invest in, however, there are still huge gains to be made from startups and innovative companies that have more future potential than they do current assets.
Warren Buffett Has Lost Money Due to Slow Decision Making in the Past
Some investors will tell you to cut your losses and get out when you can. This is usually when a particular investment is crashing, with no realistic chance of it growing in value in the near or mid-term future.
In 2014, it was revealed that Buffett’s Berkshire Hathaway investment company lost up to $750 million from investments in Tesco, a large British supermarket firm. Buffett had initially noted problems with the way the company was being managed, but only sold off a small quantity of stock, hoping for a recovery by the company. The complete opposite happened, and Tesco lost almost half of its stock value in a year.
The takeaway? If Buffett had of got out early, the losses for himself and his investors would have been much smaller. Holding onto promising stocks during a decline can be a good idea, however, when a company shows management and financial problems, sometimes it’s better to cut your losses and move on to better investments.
Developing investment expertise is a long process, and even the most successful investors can get caught out by mistakes at times. Learn all you can from experienced investors, follow the news, and don’t be afraid to take risks or cut your losses when you are buying or selling investments.
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