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It's not often that a public figure makes a mistake and decides to come right out and fess up to it. But, the second richest man in the world is no ordinary specimen.
Warren Buffett recently admitted in his letter to shareholders that he made some investing blunders in 2008 - and at least one was a doozy. Why would the Oracle of Omaha admit that to shareholders?
Because he believes that if you forget your mistakes, you are doomed to repeat them - and so does our colleague over at Penny Sleuth, Jonas Elmerraji.
The article below is on loan to The Daily Reckoning from our sister publication Penny Sleuth, a free e-letter that covers small-cap stocks, options, over-the-counter markets, and other high-growth opportunities. It's not our beat here at the DR, but you may enjoy what they have to offer.
Keep reading for the full story and to learn more about Penny Sleuth.
Cheers,
Kate Incontrera
Managing Editor, The Daily Reckoning
Learn from the Dumb Things Buffett Did in 2008
by Jonas Elmerraji
Tune your TV to CNBC, Fox Business, or Bloomberg and you're bound to see consistency - the same financial pundits that cheered the market on through the first half of 2007 have now become the market's most vocal critics.
Flip-flopping is nothing new to the "stockerati," the financial experts who more or less regurgitate the front page of the day's Wall Street Journal on TV and call it their own brand of biting stock analysis.
But that doesn't seem to bother anyone. We've come to expect it...
Most members of traditional financial media promulgate investment ideas, only to jump aboard the next business bandwagon when the situation changes. They do it unapologetically - after all, why wouldn't they change their tunes at the drop of a hat if they knew that they wouldn't be called out on it.
It takes intestinal fortitude to admit when you're wrong. It takes even more to say that your dumb decisions cost investors money. Warren Buffett did both.
Is it a surprise that the most honest investor on Wall Street is actually based in Omaha, Nebraska? Probably not...
The Investor with Integrity
Buffett is the Chairman and CEO of Berkshire Hathaway, and the second- richest man in the world according to the Forbes list of the 400 richest people. He's also known as the world's best investor.
So then, why is he outing his mistakes to millions?
"During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action," he announced in his latest letter to shareholders.
But it's that very admission of guilt that makes Buffett what every investor should aspire to be. It's what separates Buffett from the stockerati that tries so hard to imitate him.
After all, Buffett's performance could have been much worse for the year. In 2008, Berkshire Hathaway outperformed the S&P 500 by 27.4%, meaning that the Oracle of Omaha's investments held up significantly better than the rest of the stock market.
Others would have touted the year as a success - after all, he performed better than most mutual funds, a plethora of hedge funds, and most individual investors - Buffett didn't.
Three Lessons to Learn from the Oracle's Mistakes
Because those who forget their stock market mistakes are doomed to repeat them:
Don't Seek Approval - Per Buffett, "Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re- examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
Understand What You Own - "Recent events demonstrate that certain big- name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie [Munger] and me in this hapless group," he said.
The Market Can Be Wrong - "The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today's could have been obtained on good-grade municipal or corporate bonds even while risk- free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms."
It's hard to see the market clearly when things look as ominous as they do only three months into 2009. Sellers are overwhelmingly pushing the direction of the market today, but that pace can only be kept up for so long. Keep Warren Buffett's advice in mind, and you'll end this debacle with your head above water.
Cheers,
Jonas Elmerraji
Editor's Note: Penny Sleuth, Agora Financial's free small-cap and options e-letter, is brought to you every Monday through Friday. The Sleuth offers insights and investment tips, tricks and strategies ranging from technical analysis to emerging technology stocks to option plays and other high-growth opportunities. Sign up today for the best small-cap trading and investment advice on the web!
Monday, 6 April 2009
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