Everyone makes mistakes—the worst investors, and yes, even the best ones.
In 1993 Berkshire Hathaway exchanged 25,200 shares for ownership of a company called Dexter Shoes. Today, Dexter is a worthless company, but those shares are worth more than $7 billion.
In 2014, Buffett looked back on that and said, “As a financial disaster, this one deserves a spot in the Guinness Book of World Records.”
Today we found out that Buffett one-upped himself.
Berkshire Hathaway has compounded at 20% from 1965-2020, compared to a 10.2% return for the S&P 500 over the same time. This actually understates his returns because his limited partnership, which started in 1956 and ran through 1970, absolutely demolished the market.
Over a 56-year period, the gap between a 10% and 20% annual return becomes laughably large. You would have been 120x better off with Buffett than the overall market. This might be the Cal Ripken streak of investing. We’ll probably never see anything like it again. And yet, even with numbers like this, he sure had a few setbacks along the way.
In Big Mistakes, The Best Investors and Their Worst Investments, Michael Batnick writes:
Buffett has included the word ‘mistake’ 163 times in his annual letters. He, like everybody else who has ever put a dollar into the market, is no stranger to lousy investments.
That number is now 164 and counting because today, in his annual letter, we learned about a miscalculation that cost the company a lot of money. The $37 billion he spent for Precision Cast Parts was written down by $11 billion.
Mistakes are part of the game. Losing money is part of the process. The most important thing, and it’s easier said than done, is to learn from them. You’re going to make 10,000 mistakes along the way. Try not to make the same one twice.