Warren Buffett is one of the most successful investors of all time, with a net worth over $85 billion, making him the 4th wealthiest person in the world. Yet, as Buffett is willing to admit in his legendary annual letters to his Berkshire Hathaway shareholders, even the best investors make mistakes.

In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as a durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.

At Winning Edge Investments, some services/analysts will have exceptional performances over time, and then at certain periods lose their competitive advantage or suffer from variance, resulting in a downturn in performance. The same as Warren Buffett reviews the performances of all of the companies he owns in the Berkshire Hathaway portfolio, we continually review the performance of all of our services, reviewing results and analysing performance over 100+ variables/factors through a proprietary database to determine where the edges are and where they may be leaking units. We then work very closely with our analysts to improve performance. If we ever feel that an analyst or service has lost its edge or is not delivering to our expectations, we will not hesitate to pause or terminate the service, and have done this a number of times during our history. This is a completely normal and prudent process for any fund manager of any successful investment portfolio. Some short sighted members seem to believe that the poor performance of a service, whether short-term or long-term is some sort of unacceptable situation, whereas it is a mathematical reality and certainty, and perfectly normal during any investment cycle over multiple years. We sometimes get asked about ‘Survivorship Bias’ with our services and are proud that only 2 services in our entire history have been terminated in an overall loss position. All other services, and the sum total of all services that have been terminated for a variety of reasons in our history, were in profit.

In a 2010 interview with Becky Quick on CNBC, Warren Buffett said the dumbest stock he ever bought was Berkshire Hathaway. Buffett explained that he first invested in Berkshire Hathaway in 1962 when it was a failing textile company. He thought he would make a profit when more mills closed, so he loaded up on the stock. Later, the firm tried to weasel Buffett out of more money. A spiteful Buffett bought control of the company, fired the manager and tried to keep the textile business running for another 20 years. Buffett estimated that this vindictive move cost him $200 billion.

The investment advice here is do not let emotions factor into financial decisions. Whilst a service going through a period of variance or sustained flatlining or losses can be frustrating, an emotional investor is not a successful investor.

Not all Warren Buffett advice stems from financial losses. One of his regrets is not buying the Dallas-Fort Worth NBC station for $35 million. In his 2007 letter to shareholders, Buffett explained that he passed up the chance to purchase the station in 1972. He turned down the offer despite wholeheartedly trusting the person who made it, knowing there was excellent growth potential and it would require essentially no capital investment. Buffett pointed out that the station earned $73 million pre-tax in 2006, and at the time he wrote the letter, it was valued at $800 million.

The moral of the story is to take advantage of an opportunity when it comes knocking.

Warren Buffett’s portfolio doesn’t include Google stock, and that’s something he regrets. At the 2017 Berkshire Hathaway annual shareholders meeting, he told investors he made a mistake by not purchasing shares in the tech giant years ago when it was getting $10 per click from Geico — a wholly owned subsidiary of Berkshire. Buffett has shied away from tech stocks in the past because he didn’t understand their models. Still, he said he should have figured them out because he was effectively a client of the Google ad business.

In a February 2017 interview, Buffett was asked why he’d never bought stock in Amazon. He admitted he didn’t have a good answer. “Obviously, I should have bought it long ago, because I admired it long ago,” he said. “But I didn’t understand the power of the model as I went along. And the price always seemed to more than reflect the power of the model at that time. So, it’s one I missed big time.”

The lesson here with Buffett’s misses in Google & Amazon is do not overlook investment opportunities right under your nose.

Noel Whittaker (one of the world’s foremost authorities on personal finance): “The greatest enemy of the investor is not taxation or inflation - it is simply inertia”

Sometimes potential investors are too strategic and calculating and skittish. By the time they have completed all of their analysis the opportunities have been lost and the time has passed.

The Bottom Line

While making mistakes with money can be painful, paying a few “school fees" now and then doesn't have to be a total loss. If you analyse your mistakes and learn from them, then you become a more experienced and intelligent investor, granting you the opportunity to make the money back and much more next time. All investors, even Warren Buffett, must acknowledge that mistakes will be made along the way, but had Warren Buffett given up or doubted himself after a mistake, he wouldn’t be worth $85 billion today.

MarketWatch did a recent article entitled: “Warren Buffett hasn’t lost his touch and Berkshire Hathaway critics – as usual – are short-sighted.”

Some of the most pertinent excerpts include:

“No adviser, not even someone with as good a record as Buffett’s, makes money every year, much less beats the market. The belief that there such an adviser exists is a triumph of hope over experience. Even worse, such a belief often leads investors to prematurely get rid of excellent advisers in favor of whomever is playing a hot hand for the moment.”

“These are the conclusions I reached upon analyzing the incidence of market-lagging and money-losing years among the investment newsletter portfolios tracked by my Hulbert Financial Digest performance monitoring service. Even among those newsletters that beat the market over the entire time they have been tracked, they lose money one out of every four years, on average. And they lag a broad market index fund in an average of one out of every two years.”

These lessons align with the reality of tipping services. People often leave a highly successful long-term service for the next hot thing without the track record or service to match, only to be disappointed.