What To Learn From Warren Buffett’s Mistakes

Business WisdomWhat To Learn From Warren Buffett

First things first, he may have made mistakes but he also made massive good decisions. The interesting thing is that some of the mistakes Warren Buffett made can be applied to running a typical SME business.

If you are going to learn things, then it may as well be from someone who has truly been there and bought the T-Shirt.

Don’t Do Things On Ego

Ego. We all have one and sometimes is can be difficult to keep it in check.

Way back in 1962 Warren Buffett bought shares in a textile mill called Berkshire Hathaway. Sometime after that he decided to sell his shares and agreed a price with the president of Berkshire Hathaway of $11.50. When the paperwork came through to complete the sale he noticed that the sale price had been reduced to $11.375 per share.

The story goes that Buffett was so annoyed by this that he cancelled the sale and set about buying as many shares as he could in the company, the plan was to buy a controlling stake and then sack the president. This is something he achieved, bought the shares and sacked the president.

The downside was that as a result of increasing cheaper foreign imports and a high maintenance cost, the textile mill was a disaster of an investment. Buffett was later credited as saying that the whole opportunity cost of the exercise was somewhere around $200bn.

Lesson one is to run your business based on facts, don’t let your ego take over.

You Don’t Always Know Best

In 2007 Buffett invested somewhere near $2bn in a Texan utility company. The investment didn’t go well and within 6 years the losses where around $800m. Buffett admitted that he got this one wrong. So what happened?

No matter what you do mistakes will always happen. In this case Buffett made the decision to invest himself. He had a long time business partner who had worked with him on many deals before, his partner also had direct experience of this type of industry. Had he done so this time then his partner would have seen enough warning signs and they would likely have walked away.

The lesson here is that no matter what you know the opinion of someone you trust remains invaluable. By trust I mean someone who will tell you the truth, there is a difference between trust and friendship. Have someone you trust on your mobile, for the price of a coffee or glass of wine you could just save your business.

By Dave Farmer

The stories here are based on research, although they need to be read as a blog post is intended! Dave Farmer is the founder of Lime Consultancy, an award winning business finance specialist based in Sussex. Please add your comments to the post, share it on Social Media and let me have your feedback here.

 

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