Learn to invest with Buffett

Chapter 70

Chapter 12 Investment mistakes are a mirror

Chapter 12 Section 1 Buffett’s Mistake: Buying Control of Berkshire Textiles
If you buy a stock at a very low price, it's easy to get out at a decent profit, even if the company's operating results may be poor in the long run.This kind of investment method is called the "cigar butt" investment method, that is, picking up a cigarette butt on the side of the road at random, which may allow you to take a puff and enjoy the cigarette addiction. For addicts, this is just a matter of effort.Either you're an expert in liquidation, or it's a fool's errand to buy a company like this.

--Warren Buffett
The first mistake Buffett made in the first 25 years was buying control of Berkshire Textiles. Even though he knew clearly that the future of the textile industry was not bright, he bought it because he was lured by extremely cheap prices.This investment method was very profitable in Buffett's early investment, but after investing in Berkshire in 1965, Buffett began to find that this was not an ideal investment model.

Buffett believes that his purchase of Berkshire Hathaway was the biggest mistake in his life worth "$2000 billion". "Investing a large amount of money in (textile) this depressed industry, Berkshire Hathaway has also become a new starting point for my career and has had a huge impact on my future development."

In fact, Buffett had no intention of acquiring Berkshire Hathaway that year.According to Buffett, the company was in deep trouble at the beginning, and its textile factories closed down one after another. When the company closed down, the company would sell some of its stocks.Buffett, who saw the business opportunity, tried to buy the stocks of several factories that had not yet closed down, and then sold them to the company to make a profit.

In 1964, Berkshire Hathaway planned to repurchase the shares held by Buffett. Stanton, then president of Berkshire, assured Buffett that he would buy the remaining shares of Berkshire at $11.5 per share. price bid.A few days ago, the company's shares were bid at $11.38.This move made Buffett extremely annoyed. Immediately, he decided not to sell his stocks and frantically bought Berkshire Hathaway, eventually obtaining a controlling stake in the company.

However, Buffett believes that if he did not invest in this cotton textile company that was on the verge of bankruptcy and switched to an insurance company with good operating conditions, "the company's current value will be twice that of Berkshire Hathaway." The implication is that this biggest investment mistake made it lose at least 2000 billion U.S. dollars in profits.

Although the stock god Buffett laughed at himself that buying Berkshire Hathaway was his biggest investment mistake, there is no doubt that this "textile manufacturing" company that was once considered to be on the verge of bankruptcy has become a world-renowned company today. The "money-making" company is Buffett's investment flagship.

在巴菲特的精心运作下，伯克希尔?哈撒韦公司净资产从1964年的2288.7万美元，增长到目前的3000多亿美元；股价从每股7美元一度上涨到近15万美元。

"Many of the insurance companies we have acquired have also established some insurance businesses. We use the insurance float to buy other assets, because the insurance float is a fund that we can use ourselves, so if you use it for investment If you do this, you can make a lot of money, which is why Hathaway is very successful.” In the 2008 financial year when the financial crisis broke out, Berkshire Hathaway’s diluted earnings per share were still as high as $3224 , with net assets of US$70532 per share and cash flow of US$16439 per share, it continues to maintain its position as the most expensive stock in the US stock market.

The company's performance report in 2009 showed that the company's net profit in 2009 rose 61% to $80.6 billion.But book value still lagged the S&P 500's 26.5 percent gain, underperforming the market for the first time in five years.However, in 5, Buffett re-established his investment plan and continued to be optimistic about the future market. He also said a few days ago that the U.S. economy is "moving slowly, not fast," but "we are moving in the right direction."

Buffett has also made many mistakes in his 25 years of investment, such as being tempted by low stock prices and ignoring the company's qualifications.Of course, if you think of Buffett as "the undefeated West", you will definitely be disappointed.In fact, the stock god is great because he can gain strength from each of his mistakes without being carried away by a single occasional success.

People are not sages, and there is nothing wrong with them. Even Buffett, an investment guru who has been in the market for nearly 40 years and has achieved brilliant results, has encountered embarrassing setbacks.

Buffett's top six investment mistakes are:
First, invest in companies that do not have long-term sustainable competitive advantages. In 1965, he bought the Berkshire Hathaway Textile Company. However, due to the huge pressure from overseas competition, he closed the textile factory 20 years later.

Second, invest in depressed industries.Buffett invested US$1989 million in preferred shares of American Airlines in 800. However, as the airline industry's economic downturn continued, his investment also dropped sharply.He regretted this investment.When asked once what he thought of the Wright brothers who invented the airplane, he replied that someone should shoot them down.

Third, invest in stocks instead of cash. In 1993, Buffett bought the shoe company Dexter for $2000 million, but he replaced the cash with shares of Berkshire Hathaway, and as the company's stock price rose, he now buys the shares of the shoe company Worth $20 billion.

Fourth, sell too quickly. In 1964, Buffett bought a 300% stake in American Express, which was in scandal at the time, for US$2000 million, and later sold it for US$20 million. If he is willing to persist until today, his American Express stock is worth as much as US$[-] billion.

Fifth, although seeing investment value, there is no action.Buffett admits that although he is optimistic about the future of the retail industry, he has not increased his investment in Wal-Mart.His mistake cost Berkshire Hathaway shareholders an average of $80 billion a year.

Sixth, too much cash.Buffett's mistakes all come from having too much cash.To overcome this problem, Buffett believes that one must wait patiently for an excellent investment opportunity.

When Buffett used to run Buffalo News, American Express (a diversified global travel, financial and network service company), Geico Insurance and other companies, he was able to successfully "turn losses into profits", which in the eyes of ordinary investors It is a great thing, but Buffett said that he will not take such a challenge again in the future.

Investment motto:

It's much better to buy a good company at a reasonable price than a mediocre company cheap.In addition, as the saying goes: "A good horse needs a good jockey to get good results." You will not experience the benefits of a good company if you have a bad manager.When choosing a company, investors specifically choose the one-foot low hurdle, and try to avoid encountering the seven-foot high jump.

(End of this chapter)