Even Warren Buffett Makes Mistakes

| August 22, 2008 | 0 Comments

Just last week I had a few friends over for dinner.  Long time readers know one of my many passions is cooking.  So of course I had to prepare dinner.  I started thinking of exotic dishes.  But this was a work night. Time would be limited so I picked something simple.

I settled on a long-time favorite – Chicken & Rice.

Then I made a huge mistake.  The dish is relatively easy to make.  And I’ve prepared it hundreds of times.  I was in a mad rush around the kitchen preparing everything.  Nothing unusual for me but this time was different.  Somehow I lost track of the ingredients I was adding.

The savory earthy flavors of the spices mixing with the chicken and rice filled the house with a beautiful aroma.  By the time the guests arrived I was salivating.  I couldn’t wait for dinner.  I rushed the guests to the table.  I was moments away from proudly displaying my Chicken & Rice masterpiece.  I couldn’t resist.  I snuck a taste.  I almost died.

It was inedible.

I took another taste . . . it was too salty.  Somehow in all of my craziness I lost track of the ingredients.  I added way too much salt to the dish.  It was so bad . . . it was inedible . . . I called for pizza delivery.  Then I shamefully explained to my hungry guests what happened.

The night may have been a bust, but I learned something important. What did I learn?  Give me a moment.

From its peak a few months ago, the stock is down more than 20%.  And over the last year, the stock is flat.

I’m talking about Berkshire Hathaway Class B (BRK/B).  The investment vehicle of famed investor Warren Buffett.  Over the last few months, Warren and his company have been struggling.

The first bit of bad news came to light earlier this month.

When Berkshire announced earnings it wasn’t good.  Berkshire’s net income dropped 7.6%.  Last quarter the company’s net income dropped 64%.  I don’t know about you but I hope it’s not the start of a trend.

But that wasn’t all the bad news.

In March, Buffett owned more than 35 million shares of Anheuser-Busch (BUD).  So when the European beverage conglomerate InBev agreed to buy Anheuser for $65 a share, investors were happy.  Then InBev increased their offer to $70 a share.  Buffett once again looked like a genius.

But not so fast.

In the last few days, Buffett disclosed his holdings.  New reports filed with the government show Berkshire investors and Buffett followers don’t have much to be happy about.  Turns out Buffet only owns 13.7 million shares.  Apparently he sold the other 60%+ of his BUD shares.

Now for the bad news.

Buffett sold them before the acquisition was announced.  He sold them too early.

Now, I’m sure he made some good money on the investment.  And he hasn’t disclosed what price he sold the BUD shares for yet.  But, he certainly left millions and maybe hundreds of millions on the table, simply by selling his shares too early.

So what lesson did I learn from my kitchen . . . anyone can make a simple mistake.  And Warren Buffett taught me even the greatest investor of all time can make a mistake.  The next time you have a bad trade . . . and don’t let your winners run.  Remember, mistakes happen to the best – and richest of us.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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