The mistakes that cost the most

Most of Buffett’s mistakes have not been bad bets.

They’ve been good bets he didn’t make.

“Most of our mistakes have been mistakes of omission rather than commission.”

The costly mistakes were not the bad bets. They were the good bets that weren’t taken. The businesses that were understood, could be seen clearly, were known to be valuable, and not acted on.

“The biggest category over time has been being reluctant to pay up a little for a business I knew was really outstanding, or to continue to buy it at higher prices when I knew it was outstanding. The cost of that has been many, many billions.”

He understood the business. He knew it was outstanding. He just didn’t want to pay the price. And he calls that the most expensive mistake of his career, repeated over and over again.

“What’s an error is when it’s something we understand, and we stand there and stare at it, and we don’t do anything. Or worse yet, when we do something very small with it. We do an eyedropper’s worth when we could do it very big. Charlie refers to that elegantly as sucking your thumb.”

You know what to do. You can see it clearly. And you sit there, unable to act.

Here is Munger sharing a story that drives home how much omissions can cost.

“When I was somewhat younger, I was offered three hundred shares of Belridge Oil. Any idiot could’ve told there was no possibility of losing money and a large possibility of making money. I bought it. The guy called me back three days later and offered me 1,500 more shares. But this time, I had to sell something to buy the damn Belridge. That mistake, if you traced it through, has cost me $200 million. And it was all because I had to go to a slight inconvenience and sell something.”

$200 million!

Not because he made a bad investment. Because he didn’t make a big enough good one.

I think this goes beyond investing.

• The business you knew was exceptional, but moved on slowly just in case you were wrong.

• The person you could see was great, but you did not pay enough so he left.

• The decision you made correctly in your head, then executed at tenth the scale.

Same error every time.

The question I sit with now isn’t just: am I right? It’s: if I’m right, am I acting at the right scale?

A small bet on something you understand fully isn’t prudence. It’s a more comfortable version of sucking your thumb.

Best,
Harsh

I share what I’m learning as a business builder. Extraordinary ideas, daily on my WhatsApp Community and LinkedIn, and weekly on my Sunday Email.