Month: December 2023

No entrepreneur sets out to run a lousy business, but according to investment guru Warren Buffett, there’s profound wisdom to be gained from such experiences. In Buffett’s view, navigating the challenges of a struggling enterprise offers unparalleled lessons that go beyond the reach of a high IQ.

During the 2017 Berkshire Hathaway Annual Meeting, Buffett emphasized the importance of experiencing the hardships of managing a lousy business firsthand. He remarked, “I really think if you want to be a good evaluator of businesses, an investor, you really ought to figure out a way, without too much personal damage, to run a lousy business for a while.” For Buffett, the insights gained from grappling with the difficulties of a failing venture are invaluable.

Buffett went on to explain that enduring the trials and tribulations of a subpar business provides a unique perspective on the intricacies of entrepreneurship. He stated, “I think you learn a whole lot more about business by actually struggling with a terrible business for a couple of years than you learn by getting into a very good one where the business itself is so good that you can’t mess it up.”

In essence, Buffett advocates for the hands-on, immersive learning that comes from managing a business facing challenges. He believes that this experience equips individuals with a deeper understanding of the complexities of the business world, emphasizing the importance of resilience, adaptability, and strategic decision-making.

So, while no one aspires to run a lousy business, Warren Buffett’s insights underscore the transformative power of facing adversity and emerging stronger on the other side. It’s through these challenges that individuals gain a practical education in business, ultimately becoming more adept evaluators and investors in the long run.

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© 2023 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

In the realm of investing, Warren Buffett reflects on a concept he aptly terms “thumbsucking,” a phrase coined by his long-time partner Charlie Munger. Thumbsucking, as Buffett describes it, occurs when investors hesitate on glaringly obvious opportunities or, more commonly, when they take too modest a position in a stock to reap substantial benefits. These instances, deemed “stakes of omission” by Buffett and Munger, represent missed opportunities and the accompanying opportunity costs.

Addressing this phenomenon at the 2001 Berkshire Hathaway annual meeting, Buffett clarified their perspective on errors. He asserted, “We only regard errors as being things that are within our circle of competence. So if somebody knows how to make money in cocoa beans, or they know how to make money in a software company or anything, and we miss that, that is not an error, as far as we’re concerned.”

For Buffett, an error occurs when they overlook an opportunity within their understanding and fail to take action. Even more frustrating, he notes, is when they do act but in a small, insufficient manner when a more substantial investment was feasible. Munger humorously refers to this situation as Buffett “sucking his thumb.”

Buffett acknowledges instances where Berkshire Hathaway has been guilty of thumbsucking, particularly with businesses well within their comprehension. He identifies various reasons for this, such as starting to buy and then waiting for the price to return to the initial level, among other factors.

The takeaway from Buffett’s insights is clear: Thumbsucking, or hesitating on opportunities within one’s realm of understanding, can lead to missed potential and opportunity costs. Investors are reminded to act decisively when they recognize opportunities, avoiding the pitfall of indecision or insufficient commitment. In the dynamic world of investing, the cost of thumbsucking can be substantial, emphasizing the importance of seizing opportunities with a confident and informed approach.

Hear Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 2023 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

In the fast-paced realm of financial news, where stock indices can experience dramatic fluctuations in the blink of an eye, it’s easy to become entranced by the market’s unpredictable dance. However, if we aspire to emulate the legendary Warren Buffett, he steadfastly advises against succumbing to this alluring spectacle. According to Buffett, the capricious nature of the stock market holds little significance for successful investing.

During the 1999 Berkshire Hathaway annual meeting, Buffett emphasized his and Charlie Munger’s approach: “Charlie and I don’t think about the market. And Ben (Graham) didn’t very much. I think he made a mistake to occasionally try and place a value on it.” For Buffett, the key to successful investing is to transcend the tumultuous fluctuations of the market and focus on the essence of individual businesses, where true value resides.

Buffett’s philosophy encourages investors to view stocks not as mere entities with fluctuating prices on paper but as integral parts of businesses. He and Munger prioritize a deep understanding of individual companies, their operations, and their long-term potential. By doing so, they avoid being swayed by short-term market whims and focus on the enduring value that businesses can generate.

In essence, the sage advice from Warren Buffett is to look beyond the noise of market fluctuations and concentrate on the fundamentals of the businesses in which one invests. By adopting this perspective, investors can navigate the ever-changing financial landscape with a steady hand and a focus on long-term success.

Hear Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 2023 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

In the unpredictable world of stock markets, the temptation to short a company’s stock when it appears overvalued can be strong. However, investing legend Warren Buffett offers a cautionary perspective on this risky strategy.

Buffett, renowned for his successful long-term investment approach, has repeatedly advised against short selling. Speaking at the 2001 Berkshire Hathaway Annual Meeting, he described short selling as “an interesting item to study because it’s, I mean, it’s ruined a lot of people. It’s the sort of thing that you can go broke doing.”

One of the key reasons Buffett discourages short selling is the inherent risk involved. Unlike buying a stock with a capped loss (the amount invested), short selling exposes investors to unlimited losses. This crucial distinction, according to Buffett, makes shorting considerably different from being long on an investment that has already been paid for.

Buffett’s reluctance to engage in short selling is grounded in the observation that overvalued stocks tend to be more prevalent than undervalued ones. He notes, “You see way more stocks that are dramatically overvalued in your career than you will see stocks that are dramatically undervalued.”

This advice from one of the most successful investors of all time serves as a reminder to investors to tread carefully when considering short selling. While the potential gains may seem enticing, the risks associated with unlimited losses should give pause. Buffett’s timeless wisdom suggests that, in the ever-changing landscape of the stock market, a prudent and patient approach to long-term investing may be a more reliable path to success.

Hear Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 2023 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.