Successful Investments Warren Buffett Passed On (GOOGL, XRX)

Warren Buffett, the Oracle of Omaha, is one of the greatest investors of our time. Not even the Oracle is perfect, however, and Buffett readily admits to making huge errors that have cost investors significant sums of money. Buffett has publicly stated that some of his greatest errors are actually errors of omission — failures to seize upon the opportunity. These so-called unforced errors, a term he borrowed from tennis parlance, have cost investors billions of dollars in lost earnings. Buffett's mistakes are a reminder to the average investor that not even the vision of an oracle is always 20/20.

Perhaps the biggest missed investment opportunities result from Buffett's discomfort with certain business sectors. Historically, Buffett has avoided investing in the majority of the great tech investments of the last two decades. For instance, Berkshire Hathaway chose not to invest in Google, now a subsidiary of Alphabet Inc. (NYSE: GOOGL), and Xerox Corporation (NASDAQ: XRX). His value strategy has his positioning more inclined to take the larger blue chip stocks, so he has also avoided emerging technologies like Square (SQ) and PayPal (PYPL). Additionally, Buffett has stated that he believes many tech companies are profitable investment opportunities, but he has not invested in them because he typically does not like to invest in businesses that he does not understand. If Buffett does not understand the business, he feels that he cannot determine the true risk level of the investment. Further, the tech industry moves fast, and it can be nearly impossible to pick the winners early on when the price of shares are hard to value.

In the first quarter of 2016, Berkshire began buying Apple Inc. (NASDAQ: AAPL), which has increased its holdings in technology overall. Apple accounts for 23.84% of the portfolio as of June 30, 2018, with the only other tech holding in Verisign at 0.91%.

Sometimes Buffett's omissions are a result of simple stubbornness. In the case of Walmart Inc., previously Wal-Mart Stores Inc., (NYSE: WMT), one of Buffett's great losses, he actually did initially begin buying shares. Unfortunately, he failed to follow through on the share purchase plan and missed out on billions of dollars in earnings for investors. In the 1990s, Buffett agreed to purchase 200 million Walmart shares at $11.50 or less per share. After purchases started, the share price began to slowly creep upward. Buffett obstinately balked at the price increase, which amounted to $0.125 per share or 0.5% of the intended purchase price, and halted purchasing. When discussing the mistake in 2004, Buffett estimated that the cessation had cost Berkshire Hathaway at least $10 billion.

Berkshire has continued to keep a stake in Walmart, buying more shares from 2009 through 2014. Holdings in Walmart reached a peak at 60.4 million shares in the first quarter of 2015. Since then Buffett has been reducing the stake with current holdings as of June 30, 2018, at 1.4 million.

Long before Buffett became the Sage of Omaha, he learned an important lesson about the value of holding an investment for the long haul. As a preteen, Buffett and his sister each purchased three shares of Cities Service Preferred, a company that later became part of Citgo Petroleum Corporation, a subsidiary of Petróleos de Venezuela S.A., valued at $38.25 per share. The stock plummeted to $27, so Buffett and his sister were eager to cash out when the stock rose again to $40. Unfortunately, within days the stock skyrocketed to $202. Buffett’s failure to buy and hold likely cost him tens of thousands of dollars. Although the loss is nothing compared to many of his other losses, it was a formative experience for him. Buffett learned that patience is key in investing, and it is often better to invest for the long term rather than chasing a quick profit.

In the early 1960s, Buffett purchased shares of The Walt Disney Company (NYSE: DIS). He was wise enough to see the growth opportunity and purchased enough shares to secure a 5% ownership stake in the company. About a year after the purchase, Berkshire Hathaway sold its shares for a rather tidy 50% profit. By selling the shares so quickly, Buffett estimates that he lost out on $9 billion in earnings over 50 years. He improved his gains over the Cities Service error, but the mistake was still the same. He failed to hold on to a great investment and cost investors billions.

Although Warren Buffett is probably the greatest investor of our time, even he has made costly errors. He has failed to seize some great opportunities and become impatient at times leading to lost gains. The Oracle’s deep value approach can also limit the investing universe for the portfolio, overlooking some of the market’s high growth, high risk stocks. However, in the cases of technology and Walmart, Buffett has proven to regain some lost ground by remaining diligent. Overall, his patience, flexibility, diligence and investing failures provide for both successes and errors that all investors can learn from.