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IMAGINE PUTTING your teenager behind a steering wheel to take a driving test without any prior preparation. The result is predictable—she would fail and you’d be lucky if she didn’t crash. Would you reprimand her for this result? Of course not.
So why is it that so many of us are merciless—both to ourselves and even our loved ones—when it comes to our investing blunders? You know what I’m talking about: putting money into a meme stock that subsequently cratered; getting caught up in the dot-com bubble of 2000 just before it burst; putting our entire 401(k) into company stock only to lose both our job and nest egg when the company went belly up; or selling Amazon at $50 a share after getting back to even—a prime example of the disposition effect.
How many of us have a degree in finance or the CFA—Chartered Financial Analyst—designation after our names? The reality: Most of us have never received any formal training in personal finance or investing. Not surprisingly, only a third of Americans can pass the most basic of financial literacy tests.
What about the pros? Even the best of the best make mistakes—sometimes large ones. Legendary investor Warren Buffett recently sold his longtime stake in Wells Fargo, frustrated by the bank’s accounting scandal. He sold many shares at depressed prices during the COVID-19 recession. This turned out to be a costly error. It’s estimated that he missed out on some $10 billion in gains based on the stock’s recent rebound.
Interestingly, Charlie Munger—Warren Buffett’s longtime business partner at Berkshire Hathaway—had a different view on Wells Fargo’s stock. As the chairman of Daily Journal Corp., Munger manages its investment portfolio, which also owns Wells Fargo. Unlike Buffett, Munger held on.
My point isn’t to pick on Warren Buffett, who is perhaps the greatest investor of our time. In fact, that’s the point. No one bats a thousand. Remember this the next time you start beating yourself up for making a lousy investment decision.
By the way, what knucklehead would sell shares of Amazon at $50? I plead the fifth.
After Warren Buffet sold off his Wells Fargo shares where did he reinvest the proceeds and how did that investment do compared to Wells Fargo….maybe better?
Well, I have a Master in Finance, was a stockbroker in the bad time (mid-70s), Treasury analyst and did business commercial contract negotiations for 36 years. Retired in 2016, and invest my own money and yes, no one bats a 100; not even William H. Miller of Legg Mason who was a most successful mutual fund manager and beat the S&P 500 for 15 straight years until he didn’t. Nuff said.
I think Warren Buffett May have sold Wells Fargo partly, if not primarily, because he no longer wanted Berkshire Hathaway to be associated with a company that was so blatant about screwing its customers. He had many other investment options, including other banks and financial service companies, that he likely thought would provide a comparable longterm return with less reputational risk.
Here are some better examples of Warren Buffett‘s investment errors: https://www.cnbc.com/2017/12/15/warren-buffetts-failures-15-investing-mistakes-he-regrets.html
BTW you can‘t beat Jim Sloan @ Seeking Alpha for all things Buffett (plus great writing and good investment analysis in general).
Thank you, Mr. Lim, for your articles. I love your ebook of financial advice for young people.
I also don’t consider selling stock for ethical reasons to be an error.
I agree, Sabine. As a Berkshire holder, to the extent that Warren used the Wells Fargo proceeds to buy more Apple, or buy back Berkshire stock, I’m just fine with his decision to dump Wells.
Some people have instincts that are naturally contrarian. They bought oils and utilities during the dot-com boom – the stocks that nobody wanted. That was Warren Buffett’s technique, but in the past ten years he has gone off the rails and sold good companies at the bottom.
Don’t forget that there’s an early Buffett and a later Buffett. He went from quantitative to qualitative approach. Early Buffett looked for “fair companies at wonderful prices” and the late Buffett looked for “wonderful companies at fair prices”. He said you want to find companies that you don’t need a spreadsheet to know are good investments. “You want to find companies who’s business is so good an idiot could run it.”