Mea culpa investing

As you open the 'Wealth Insight' January 2023 issue, some of you must be thinking that surely, there's nothing in common between us and Warren Buffett. His investment vehicle, Berkshire Hathaway, is holding around $145 billion in cash. That's about Rs 12 lakh crore, give or take. I guess all my readers have less than that, and so do I. So, how can it be that we can learn anything at all from Buffett or Munger or anything about Berkshire? They are like a different species compared to us.

But that's actually not true. That's like saying that a young school cricketer can learn nothing from watching videos of Sachin Tendulkar. We may have slightly less money than Buffett does, but the principles of investing remain the same. Let me give you a perfect example.

One of the cornerstones of becoming a better investor (better anything, actually) is to learn from one's mistakes. Clearly, to learn from mistakes one has to admit one's mistakes. Do Buffett and Munger do that? Well, they do.

"I like people admitting they were complete stupid horses' asses. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn."

The words have the unmistakable voice of the 98-year-old Munger. As you can see, Munger does not talk like a dignified senior statesman of the business world. As a result, the things he says are actually interesting and useful, unlike the bland zero-meaning verbiage that well-known business people generally produce.

This business of recognising and admitting mistakes is a recurrent theme with Buffett and Munger. These two are almost enthusiastic about such confessions, and their decades-long tech problem is the biggest. Historically, they did poorly out of investing in IBM and bought Apple very late, although they have subsequently done very well out of it.

Worse, as Buffett and Munger themselves have admitted, one of their great failures was not buying Google. Back in 2004 or so, their own insurance company benefited enormously from the then-new advertising service of Google. It was clear to them that Google was a remarkable business. They observed this, discussed it and yet never invested in it. "We just sat there sucking our thumbs," Munger said of failing to invest in Google.

A lot of investors - regardless of their scale - would have rationalised what they did and pretended that it was the right thing to do. Most professional fund managers would also try to paper over their errors as simply a job-survival strategy. However, Buffett and Munger did not do that. Not only did they admit their mistake to themselves but they also fixed it by buying into Apple in a big way. What's more, they openly admitted to the mistake to the world in their annual shareholders' meeting and took questions about it. The net result is that their company and its shareholders have made better and more profitable investments out of it. Admitting mistakes is a path to improvement.

Of course, as is normal with Munger's utterances, they are actually life lessons rather than just investing lessons. Everyone makes mistakes and most of us find it difficult to admit that we were wrong. However, investing mistakes are something that we can quietly admit to ourselves and fix. Not only can we fix them but we can also make sure that we learn something from them, thus paving the way to better returns in the future. Look at the mass panic in the markets in March and April when COVID began. Was it a mistake? It certainly did not look like it at that time. The better question is: did we learn anything from it? Or are we going to do it again?

Suggested read: Seven investing sins