Warren Buffett’s most famous quote is: “Rule No.1 is never lose money. Rule No.2 is never forget rule number one”, which suggests that the Oracle of Omaha has never made an investment that has lost him money. But this could not be further from the truth.
Indeed, Buffett is only human, and just like the rest of us, he has made multiple mistakes over his career. However, it’s his capacity to deal with those mistakes and move on, that has helped him to become one of the world’s wealthiest and most respected investors. In the words of George Soros “I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”
A huge mistake
Buffett’s most recent mistake was Tesco. After details emerged of an accounting scandal at the UK grocery chain, Buffett conceded in a CNBC interview: "I made a mistake on Tesco. That was a huge mistake by me." Less than two weeks later, it was revealed that his Berkshire Hathaway conglomerate had cut its holding in the retailer from around 3.97%, to under 3%.
Berkshire began buying shares in Tesco in 2006, and at its peak owned just under 5% of the company. It’s said that Buffett had struck up a strong relationship with Sir Terry Leahy and was impressed by his plans to help Tesco achieve world domination. Click here to read more about Buffett's rules for judging management. Two years after Sir Terry’s departure, in October 2013, Buffett started to cut his holding from 4.98% to 3.98% by offloading derivatives that represented 80m of the voting rights in the company.
Still, even at its peak, the Tesco holding was never going to be a game-changing bet for Buffett. Five percent of Tesco at 2006 prices amounts to an investment of just over $2 billion, (around £1.3 billion). By comparison, Berkshire currently has an excess cash balance of more than $40 billion.
Let your winners run
Aside from Tesco, Buffett has made many other mistakes over his career, although not all of them have resulted in him losing money. For example, between 1978 and the early 1990s, Buffett make a huge mistake by ignoring one of the key rules of trading; let your winners run.
Capital Cities Communications, or Cap Cities was an American media company, which Buffett owned, but sold between 1978 and 1980 at $4.30 per share. The Oracle of Omaha…
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