Warren Buffett's Costliest Investing Mistakes - Here's What Everyday Investors Can Learn

If you're looking to start investing or improve your portfolio, odds are, you probably look up to Warren Buffett. Buffett, popularly known as the Oracle of Omaha, has built a reputation for himself over the years.

He is not just on the world's wealthiest list but has also been instrumental in making Berkshire Hathaway one of the most valuable companies by market capitalization. However, as with many investors, Buffett's investing journey hasn't been flawless. The billionaire has openly discussed decisions he wishes he had made differently.

Below are some of Buffett's costliest mistakes. While they're on the scale of millions of dollars, understanding them could help everyday investors improve their decisions.

Not investing in Alphabet

Alphabet, Google's parent company, is currently one of Berkshire Hathaway's top 10 holdings. However, Buffett didn't always have as much confidence in Google as he does today. In an interview with CNBC, the billionaire stated that he was hesitant to invest in the company at first, acknowledging that this was a huge mistake.

Buffett stated that overlooking Google was particularly painful because he already understood its potential. Berkshire's auto insurance subsidiary, Geico, was a Google advertising customer, paying the search engine $10 for every ad click. The billionaire admitted that he knew how Google worked and could estimate its margins, thanks to its relationship with Geico, but he remained hesitant for years — a move that saw Berkshire miss out on huge earnings.

Holding Tesco for too long

Under Buffett's leadership, Berkshire acquired 415 million shares of UK grocer Tesco. By 2012, the value of the company's Tesco shares was $2.3 billion.

While this investment may have shown potential early on, the situation had changed by 2013. So, Buffett sold 114 million Tesco shares for a profit of $43 million, leaving him with over 300 million shares of the then-deteriorating grocer.

Buffett notes that it was already too late to recover by the time he sold off all of Berkshire's Tesco shares in 2014. The grocer's profit margins and market share fell, causing Berkshire a $444 million after-tax loss.

Buying Dexter Shoe because it was cheap

In his 2014 letter to shareholders, Buffett states that the Dexter Shoe investment "deserves a spot in the Guinness Book of World Records" as a financial mistake. The Oracle of Omaha bought Dexter Shoe in 1993 for $433 million, a figure that seemed like a steal at the time.

However, it wasn't. While Dexter Shoe was, at some point, a quality business, it faced significant competition from cheaper foreign manufacturers, ultimately resulting in its failure.

Buffett notes that the mistake was compounded by the fact that he used Berkshire stock instead of cash to buy the shoe company. The shares are now worth billions, which translates to an even greater loss than the $433 million he "spent" in 1993.

Investing in oil and gas when prices were near their peak

Buffett invested in ConocoPhillips, an energy corporation, in 2008. While the company's product was (and still is) viable, his investment timing was not the best.

In his 2008 letter to Berkshire shareholders, he stated that he bought the company's stock when gas and oil prices were climbing toward record levels. Unfortunately, the prices fell sharply soon after he made the investment, something he didn't anticipate.

The Oracle of Omaha admitted that this mistake cost Berkshire billions of dollars at the time. He noted that recovery would have been impossible even if oil and gas prices rose beyond the then $40-$50 price in 2009.

Buying the original Berkshire Hathaway textile company

Berkshire Hathaway was originally a failing textile business. In 1964, Buffett agreed to sell his shares to then-owner Seabury Stanton at $11.50 per share. However, when Buffett received the official offer letter from Berkshire, the price had dropped to $11.375. Angry because of the lowball offer, he decided not to sell, and instead bought more stock, gaining majority control of the firm.

According to Buffett, this decision cost him roughly $200 billion, as he spent 20 years of his life trying to revive the failing textile business instead of focusing his attention and resources on insurance — which later propelled Berkshire to what it is today.

Lessons for everyday investors

Buffett's mistakes offer various key lessons for everyday investors, including:

• Be cautious but not overly cautious: While caution is necessary, being overly cautious may be a mistake if it prevents you from acting on viable opportunities that you understand.
• Withdraw from investments when red flags arise: A long-term investing mindset doesn't mean holding on to investments in perpetuity. Reassess your investments if business deteriorates or if red flags such as poor management arise to minimize your losses.
• Focus more on quality than cost: While cheap assets and investments might be tempting, approach them with caution. If an opportunity is cheap because its competitive position and underlying products (or services) are deteriorating, you might end up with a low-quality investment that translates to losses.
• Assess current market conditions and asset valuation: Buffett's investment in oil and gas wasn't a mistake; his timing was the mistake. To reduce your chances of making the same one, assess not just investments' potential but also prevailing market conditions.
• Consider opportunity costs: Don't judge an investment based solely on whether it'll eventually make you money. Consider whether it's worth giving up the alternative. For example, if you want to sell your home to buy stocks, assess whether giving up your home at the current market price is worth it.
• Avoid emotional investing: Making financial decisions based on how you're feeling rather than opportunities' viability could cost you.

Bottom line

If you play your cards right, investing could be one of the best ways to improve your financial fitness. Warren Buffett offers some pretty great lessons: Invest in opportunities you understand, be ready to walk away when things fail, prioritize high-quality investments, and avoid making emotional decisions.

It's worth noting, however, that no investor is perfect. So don't beat yourself up if you make mistakes. Rather, recognize and learn from them, just like Buffett has done throughout his career.

This article is for informational purposes only and should not be considered investment advice.

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