Lessons From Warren Buffett

Lessons from Warren Buffett: The Perils of Short Selling

Warren Buffett, the legendary investor, has a well-known aversion to shorting stocks, stemming from a traumatic experience in 1954. During this period, Buffett’s short position led to a rapid depletion of his net worth and a decline in his liquid assets, teaching him a hard lesson about the perils of short selling.

At the 2002 Berkshire Hathaway Annual Meeting, Buffett elaborated on the risks, stating, “It just takes one to kill you. And you need more and more money as the stock goes up. You don’t need more and more money when a stock goes down, if you paid for it originally and didn’t buy it on margin. You just sit and find out whether you were right or not. But you can’t necessarily sit and find out whether you’re right on being short a stock.”

This cautionary tale underscores Buffett’s preference for long-term investments and his wariness of the potentially devastating consequences of shorting.

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© 2024 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.

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