Comprehensive investment from Stone.
Buffett and Munger's performance is as follows, with years where the drawdown rate is 20% or higher:
<img src="https://pub.pbkrs.com/cms/2024/0/yAqcHR8BB1gNmaSE5QnhK8cD31BUfL1Z.jpg?x-oss-process=style/lg" alt="" original-src="https://pub.pbkrs.com/cms/2024/0/yAqcHR8BB1gNmaSE5QnhK8cD31BUfL1Z.jpg"/>
The total return is 43,800 times, with an annualized return of 19.8%, which is about twice the annualized return of the S&amp;P 500 index at 10.2%.
In his 1997 letter to shareholders, Buffett said:
We try to learn from the approach of professional baseball legend Ted Williams, who explained in his book &#34;The Science of Hitting&#34; that he divided the strike zone into 77 ball zones, each equivalent to the size of a baseball. Only when the ball enters the best zone does he swing to hit, because only by doing so can he maintain a super high batting average of 40%.
On the other hand, if he were to swing at poorer ball zones, his batting average would plummet to below 23%. In other words, only by patiently waiting for the super sweet good balls can one pave the way to the Hall of Fame. Those who take all balls, good or bad, will sooner or later face the fate of being demoted to the minor leagues.
But even Ted Williams had a failure rate of nearly 60%. However, in Buffett's view, worse than missing a hit is missing an opportunity.
Buffett said: The most important mistake is missing out - the kind of mistake that doesn't show up on financial statements, that is, missing opportunities. The things I could do but didn't do are the biggest mistakes of my life.
<blockquote>
1942 City Service
</blockquote>
In the year Buffett turned 11, he bought his first stock in life: 6 shares of preferred stock in City Service, a natural gas operation, 3 shares for himself and 3 shares for his sister, at a price of $38 per share. Unfortunately, the stock price quickly dropped to $27, making Buffett nervous because he didn't want his sister to lose money.
Fortunately, the stock price later rose to $40, and Buffett quickly sold, only to see the stock price rise to $200 soon after.
<blockquote>
1952: Sinclair Gas Station
</blockquote>
One of Buffett's earliest investment mistakes was when he was 21, he and a friend spent $2,000 to buy a gas station in Omaha, which was 20% of his net worth at the time. Soon after, Buffett realized that the Texaco gas station across the street was doing better because Texaco's brand was well-known and customers were loyal.
(Pabrai read a book by management guru Tom Peters, which had a cautionary tale: There were two self-service gas stations on either side of a road, one thriving because it provided high-quality services, such as free windshield cleaning, while the other did almost nothing. The result? Customers from the second station would definitely move to the one with better service.
This mistake surprised Pabrai because the easiest way to make money is to replicate the excellent strategies right in front of you.
Pabrai said: There is a strange substance in human DNA that prevents people from adopting better ideas. One thing I learned a long time ago is: constantly observe the situation inside and outside the industry, and when you see someone doing something wise, force yourself to do the same.)
<img src="https://pub.pbkrs.com/uploads/2024/e81f55152c267d7e93911164f01dca77?x-oss-process=style/lg" alt="Image" original-src="https://pub.pbkrs.com/uploads/2024/e81f55152c267d7e93911164f01dca77"/> Source: Internet
<blockquote>
1952: GEICO Insurance
</blockquote>
In 1951, Buffett invested more than half of his assets in GEICO Insurance (bought a total of 350 shares at $29.75 per share, with a total cost of $10,281.25). By the end of 1951, Buffett had a 28% return on this investment, which accounted for 65% of his net worth at that time.
In 1952, he sold all his investments in GEICO and used the money to invest in Western Insurance Company because the stock price of Western Insurance Company seemed cheaper, coupled with the &#34;cigar butt&#34; concept instilled by Graham. However, over the next 20 years, Buffett watched as the GEICO he sold skyrocketed, exceeding $1 million.
(In the epilogue of &#34;The Intelligent Investor,&#34; there is a description as follows:
In the year the first edition of this book was published, a growth company was willing to sell its common stock. For some reason, Wall Street did not favor the industry at that time, so several institutions rejected the deal. However, these two individuals saw great potential in the company; they decided to purchase it because the price of the company was not considered high relative to its current earnings and asset value. They acquired about one-fifth of the company with about one-fifth of their funds, becoming close partners of the new company, which later experienced vigorous growth.
In fact, the company later became very successful, with its stock price rising to over 200 times what they originally purchased it for. This increase far exceeded the actual growth of its earnings and seemed too high from the beginning - if calculated according to the investment standards of the two partners themselves. However, because they believed the company was a family business, despite the significant price increase, they continued to hold a large amount of shares. Many participants in their fund also took the same approach, becoming millionaires through holding shares of the company and its subsequent subsidiaries.
Excluding the GEICO investment, Graham's annualized return on investment career would have decreased from over 20% to only 17%.)
<blockquote>
1964: American Express
</blockquote>
In 1963, American Express faced a fraud case with total losses of $180 million, causing the stock price of American Express to drop by over 50%.
Buffett used Fisher's scuttlebutt investment method to assess the impact of this incident on American Express. He found that people still used American Express credit cards and checks when dining, shopping, and traveling, and he also evaluated the financial situation of American Express.
In 1964, Buffett allocated 20% of the partnership's assets to invest, and sold these stocks two years later when the stock price had doubled, earning him $20 million.
Undoubtedly, this was a very outstanding investment. If Buffett had not sold the stocks back then, their value would be worth billions of dollars today
1962-1964: Berkshire Hathaway
In 1960, Buffett wanted to sell his shares of Berkshire Hathaway at an initial price of $11.5 per share. However, after receiving a letter from the company offering only $11.375 per share, Buffett, in a fit of anger, bought the entire company and subsequently fired the boss. Over the next 20 years, Buffett operated this textile company in hopes of turning it around from losses to profits.
The lesson from this deal is clear: do not let emotions dictate your investments. Buffett has said that buying Berkshire Hathaway was one of his biggest investment mistakes.
<blockquote>
1966: Hochschild Kohn
</blockquote>
Buffett's first complete acquisition of a business was Hochschild Kohn, located in Baltimore. In 1996, Buffett, along with his partners Munger and Gottesman, jointly acquired all the company's shares.
The reasons behind Buffett's acquisition of Hochschild Kohn were simple: 1) the company's selling price was below its book value; 2) it had an outstanding management team; 3) it had unrecorded real estate as a buffer. All these factors pointed to the company being valuable, but ultimately Hochschild Kohn was a pure retail business.
(Running a retail business is quite challenging. In my personal investment career, I have seen many retail businesses that once had high growth rates and shareholder returns suddenly plummet, with many forced to close down.
Compared to manufacturing or service industries, this sudden eternal decline in the retail sector is not uncommon. Part of the reason is that retail businesses must always stay alert and smart, as your competitors are ready to replicate your practices and surpass you at any time, while consumers are always willing to give new entrants a chance to try.
Once the performance of a retail business declines, it is destined to fail.
<ul>
<li>Letter to Shareholders in 1995</li>
</ul>
<img src="https://pub.pbkrs.com/uploads/2024/fb3c6722e4df37e5b34c8c870065cf37?x-oss-process=style/lg" alt="Image" original-src="https://pub.pbkrs.com/uploads/2024/fb3c6722e4df37e5b34c8c870065cf37"/> Source: Internet
<blockquote>
1965-1966: Disney
</blockquote>
In 1966, Buffett invested 5% of his partnership funds in Disney, equivalent to $4 million. Within a year, he sold this investment for $6.2 million, making a profit of $2.2 million. However, this transaction also became one of the biggest mistakes in his career, as the stocks he sold later appreciated to $17 billion.
In a sense, some things are not about the price, or rather, not price-driven. This is like Disney. Disney sells family video products worldwide for $16.95 or $19.95. People, especially mothers, have a special affection for Disney. Each of you here has some feelings for Disney in your heart.
If I mention Universal Pictures, it won't evoke the same special feelings in your heart; if I mention 20th Century Fox, you won't have much of a reaction either. But Disney is different. This is true worldwide. As you grow older, you can confidently let your children watch Disney's video products for hours every day
In 1968, semiconductor experts Noyce and Moore founded Intel, which gradually became one of the world's top companies. Buffett had the opportunity to invest in Intel because he and Noyce were both board members of Grinnell College. Noyce convinced Buffett's friend Rosenfeld and Grinnell College's investment fund to invest $100,000 in Intel, but Buffett politely declined.
In 1975, after buying the failed Berkshire, Buffett felt very regretful. However, 13 years later, he made the same mistake again, this time buying another textile company in New England, Waumbec Mills.
In 2014, Buffett wrote in a shareholder letter: Do you believe that I bought Waumbec Mills in 1975 - another New England textile company? Of course, based on the price we paid and the estimated synergies with our existing textile businesses at Berkshire, the acquisition price was indeed cheap. Nevertheless, Waumbec Mills turned out to be a disaster and closed its doors in just a few years.
Buffett missed the opportunity to invest in Microsoft from 1980 to 1990. He only invested in companies and industries he understood, which made him feel secure. This principle led him to initially rule out investing in Microsoft. Later, Buffett became friends with Microsoft's co-founder Bill Gates, and he was concerned that investing in Gates' company might harm their relationship
<blockquote>
1989: American Airlines
</blockquote>
Buffett first entered the aviation industry in 1989, when the CEO of American Airlines convinced him to invest to ensure that American Airlines would not be maliciously acquired. Buffett bought $385 million of convertible preferred stock with an annual return rate of 9.25%. He bought it at $52 per share, with an agreement to convert it into stock at $60 per share in the future, but unfortunately, it was not converted because the stock price of American Airlines never rose to $60.
Buffett said that the huge fixed capital, strong unions, and pricing methods of airlines make this industry particularly difficult to succeed in. However, even so, he did not learn his lesson from investing in American Airlines. Later, between 2016 and 2020, he successively bought stocks of four other airlines.
<img src="https://pub.pbkrs.com/uploads/2024/3dec937636047297c44e89471b76ddaa?x-oss-process=style/lg" alt="Image" original-src="https://pub.pbkrs.com/uploads/2024/3dec937636047297c44e89471b76ddaa"/> Source: Internet
<blockquote>
1991: Solomon Brothers
</blockquote>
Solomon Brothers was one of Buffett's worst investments. A series of scandals in 1990 almost led to Solomon's bankruptcy.
The scandal occurred at the end of 1990 when a trader at Solomon Brothers illegally bid on government bonds. According to regulations, any bidder should not subscribe for more than 35% of the shares, but this trader attempted to purchase more than 35% to control the market. An internal investigator found two illegal bids for 5-year government bonds worth $6 billion, but the trader was not fired.
In the following year, in May 1991, Solomon Brothers tried to control the government bond market again, but this time was discovered by the Securities and Exchange Commission and fined $290 million. Solomon's CEO, Gutfreund, was fired, and the bidding trader was sentenced to 4 months in prison.
<blockquote>
1993: Dexter Shoe Company
</blockquote>
In 1993, Buffett used $433 million worth of Berkshire stock to acquire the famous shoe company Dexter Shoe Company, which then went out of business.
In his 2015 letter to shareholders, Buffett wrote: Our once-thriving Dexter Shoe Company closed its doors, leaving 1,600 employees in a Maine town jobless, many of whom were past an age where they could easily start over. We lost money on the Dexter investment, which we can afford, but many employees lost their livelihoods and could not find work again.
<blockquote>
1998: General Reinsurance Corporation
</blockquote>
In 1998, Berkshire issued 272,200 shares to purchase General Re, increasing Berkshire's stock count by 21.8%.
At the 2009 shareholders' meeting, Buffett pointed out: I was way off base. When I bought it in 1998, I thought it was the General Insurance of 15 years ago, which had an absolutely prestigious reputation in the insurance industry.
<blockquote>
1998 to Present: Google
</blockquote>
Google founders Brin and Page approached Buffett in 2000, hoping he would invest in the company, but Buffett did not agree because he mistakenly thought Google was just another search engine, not realizing its powerful advertising capabilities
2003: Walmart
Buffett bought Walmart in 1990 with the goal of purchasing 100 million shares at $23 per share. However, every time he tried to make a move, the stock price always rose a few cents higher than his ideal price, so he decided to stop buying in 2003.
At the 2004 shareholders' meeting, Buffett said: &#34;I cost everyone $10 billion, and Charlie says that doesn't sound like my worst idea - he wasn't giving praise.&#34;
That $1 billion investment may have grown to around $12 billion in value by 2019, not counting nearly 20 years of dividend income. If included, the total return would be even higher.
2006-2014: Tesco
Buffett first bought shares of Tesco, the UK's largest chain supermarket, in 2006. However, after the company's management changes settled down, its profitability began to decline. Buffett did not pay attention to this sign and even though there were warnings in 2012, he increased his investment in Tesco to over 5% of the company's shares.
The following year, he finally woke up to the reality of the company's management and sold 114 million shares out of the 415 million he held.
In 2014, Buffett continued to sell Tesco's shares, ultimately resulting in a post-tax loss of $444 million, which accounted for 0.2% of Berkshire's net worth.
2008: ConocoPhillips
In his 2008 shareholder letter, Buffett wrote: &#34;Without urging from Charlie and others, I bought a large amount of ConocoPhillips stock near the peak of oil and natural gas prices, and I had no idea about the significant drop in energy prices in the second half of the year.&#34;
Buffett spent over $7 billion on ConocoPhillips stock, but at the time of writing the letter, its market value was only about $4.4 billion.
2011: Lubrizol Corporation
In early January 2011, Berkshire's management, led by Sokol, bought a large amount of Lubrizol Corporation stock and recommended the company to Buffett, calling it an attractive target. Subsequently, in March 2011, Berkshire spent around $9 billion to acquire Lubrizol, a deal that increased Sokol's personal stock value by $3 million.
2011-2018: IBM
In 2011, Berkshire spent $10.7 billion to buy 64 million shares of IBM stock. At that time, Buffett was more interested in IBM for its office support services rather than its hardware services. Despite IBM's leading position in technology, the rise of cloud computing in just a few years significantly weakened IBM's position
<blockquote>
2015: Kraft Foods and Heinz
</blockquote>
In February 2013, Berkshire Hathaway and 3G Capital formed a joint venture to acquire Heinz products for $28 billion. In 2015, both parties contributed $10 billion each to merge Kraft Foods into Heinz, pushing Kraft's value to $46 billion.
Buffett did not anticipate changes in consumer preferences, increasing competition, declining revenue, and lower profits.
<blockquote>
2015-2016: Precision Castparts Corp
</blockquote>
In 2016, Berkshire Hathaway acquired Precision Castparts Corp for $32.1 billion. This is a top aerospace parts supplier, providing mechanical components for large aircraft to fix or join parts, and so on.
Precision Castparts Corp owned a German company, which was acquired for $870 million in 2017. However, after the transaction, this holding company significantly inflated the company's value through accounting fraud. After arbitration, Precision Castparts Corp ultimately won $696 million

BRK.B

BRK.A

Learning from the experiences of big shots' mistakes is also worth referencing to avoid pitfalls

The "Mistakes" Warren Buffett Made Over the Years