Buffett Is Human, Too

John Lim

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.

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