2004: What has Berkshire learned from the investments it passed on?

AUDIENCE MEMBER: My name is David Farlow (PH) from Minnesota, Minneapolis. Thank you, Warren and Charlie.

A few minutes ago you mentioned the importance of learning from history. What have you learned from the investments you did not make over the last few years that you now regret refraining from?

WARREN BUFFETT: Well, the mistakes we made, and we made them — some of them big time — are of two kinds. One is when we didn’t invest at all in something that we understood that was cheap, maybe because we weren’t even working hard enough at looking at the whole list, or because, for one reason or another, we just didn’t — we didn’t take action.

And the second was starting in on something that could have been a very large investment and not maximizing it.

Charlie is a huge believer in the idea that you don’t sit around sucking your thumb when you can — when something comes along that should be done that you pour into it.

And that’s generally what we’ve tried to do. But there have been times — and it’s usually happened when I’ve started buying something at X and it went up to X plus an eighth or some intolerable amount like that — and I quit or waited for it to come back. And we’ve missed, in some cases, billions of dollars of profit because of the fact that I’d gotten anchored, in effect, to some initial price when I could have paid more subsequently and it really was inconsequential.

CHARLIE MUNGER: Do you have anything worse to confess than Walmart?

WARREN BUFFETT: No, Walmart — I cost us about — it’s up to 10 billion now. (Laughter)

I cost us about 10 billion. I set out to buy 100 million shares of Walmart, pre-split, at about 23. And Charlie said it didn’t sound like the worst idea ever came up with, which is — from him, I mean, it was just ungodly praise. (Laughter)

And then, you know, we bought a little and then it moved up a little bit. And I thought, “Well, you know, maybe it will come back” or what —

Who knows what I thought? I mean, you know, only my psychiatrist can tell me. And that thumb sucking, reluctance to pay a little more — the current cost is in the area of 10 billion.

And there have been other examples, too. And there will probably be more examples in the future, unfortunately.

But that is — that’s — on the other hand, it doesn’t bother us. I mean, you know, it’s maybe instructional to talk about it just a little and I’m glad to respond to the question.

But in the end, we’re going to make a lot of mistakes at Berkshire. And we’ve made them in the past, we’ll make them in the future.

You know, if every shot you hit in golf was a hole-in-one, it wouldn’t be — you know, the game would soon lose interest. So you have to hit a few in the woods occasionally just to make it a little more interesting.

We’ll try not to do that too often. But those will be the kind of mistakes we make. We probably won’t make the kind of mistakes — although we have — we made one with Dexter Shoe — but we probably won’t make the kind that cost us a ton of money. They’ll be much more of omission than commission, I think, you’ll find in the future.

Charlie, you want to add any more?

CHARLIE MUNGER: Yeah. At least we are constantly thinking about the past occasions when we blew opportunities. Since those don’t hit financial reports, the opportunities you had but didn’t accept, most people don’t bother thinking about them very much. At least that is a mistake we don’t make. We rub our own noses in our mistakes in blowing opportunities, as we just did.