Lesson 1

Warren Buffett Discusses Investing Mistakes

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Executive Summary


Stocks at low costs do not always signal “Buy me now!”


An owner of a farm with a good tenant wouldn’t sell it. An apartment house that resides in an accessible location managed by a good manager shouldn’t be sold when the owner hears from the news about stock market prices dropping at 50%. A local franchise of McDonalds shouldn’t be exchanged to shares when stock market prices go from high to low to high.


Buying consistently overtime sort of averages over time. Buffett has been buying all his life. He bought his first stock when he was 11 years old. His mistake was selling it for fear of not getting back to a higher price right after it dropped prices. He learned his lesson there.


Why exchange something great for something good? Why repair something that’s not broken?


Full Transcript


What should people be buying right now?


Basically, hold first. The idea that news about stocks would cause an owner or investor to sell their properties is not always an excellent and advisable thing.


Just take this example: An owner of a farm has a good tenant who runs his farm very well. Would he sell it? Of course not! He is getting a good return. Therefore, the news should not suddenly change his mind. Not because stock market prices are low now means everyone who has money needs to buy. Why exchange something great for something good? Why repair something that’s not broken?


Another example is an owner of an apartment house. His apartment resides in an accessible location and is managed by a good manager. Should the owner sell it when he hears from the news about stock market prices dropping at 50%? Should he take the risk? No. Again, why exchange something great for something good? Why repair something that’s not broken?


An owner of a good business like a local franchise of McDonalds wouldn’t be thinking of buying or selling it every day when stock market prices go high to low to high. That’s just not the way it is. Buffett said, “When you own stocks, you own pieces of businesses.” To buy or sell on current news is just crazy. An owner with a wonderful business and wise employees running it, it will probably be there 5 or 10 years from now. To try something out that looks like a wonderful game is a terrible mistake.


Buying consistently overtime sort of averages over time. Buffett has been buying all his life. He bought his first stock when he was 11 years old just three months after the bombing of Pearl Harbour and the fall of Corregidor. That was also during the time of the Bataan Death March in the Philippines. News was plainly terrible. The stocks were dropping prices and that was the best time to buy! Buffett admitted that he should’ve held on to his first set of stocks forever. His mistake was selling it for fear of not getting back to a higher price right after it dropped prices.


If Zuckerburg goes on a lunch meeting and asks Buffett, “Is there any way to explain a business well enough to you where you’d pick a huge stake on Facebook?” There’s probably no chance. That doesn’t mean Buffett is negative. He just doesn’t understand the Facebook business well enough. He’s not one of the billion members of the social media site. Again, Buffett likes to buy things where there’s a reasonable idea that the business is going to be around 5 or 10 years from now – just like buying a farm, an apartment, or a franchise of McDonalds.


Again, hold first. The idea that news about stocks would cause an owner or investor to sell their properties is not always an excellent and advisable thing for those who dream of success in the investing world.