Here's the Recent Big Takeaway From the World's Greatest Investor

One of the few positives of the pandemic has been more time at home for reading, writing, and catching some great investors online...

And that includes investing legend Warren Buffett's Berkshire Hathaway (BRK-B).

Earlier this month, the company held its famed annual meeting. In the pre-pandemic world before social distancing, more than 40,000 investors would fly to Omaha, Nebraska, to be at the event in person. It was a veritable "pilgrimage of capitalism."

Every year, Buffett and his business partner Charlie Munger sat up on stage for hours answering investors' questions and describing the state of Berkshire's businesses.

Due to the pandemic, the meeting was held virtually for the second year in a row. But despite no physical audience, the meeting was still educational and entertaining to watch. Buffett provided wit and wisdom along with uncanny insights about stocks and a big-picture view of the market that very few understand and fewer still can elucidate.

Buffett's confidence in America – and its underlying values – is always a recurring theme... And he captured it again in 2021.

Munger was also in peak form. If ever someone spoke so little to say so much, it's him – particularly when he talks about his opinion on bitcoin (a very negative one, to say the least).

Listening to Buffett, one particular trait that has helped make him so successful kept coming up...

It isn't just his lack of faith in as-reported accounting (which he spoke about at length for the third time in four years at the beginning of this year's meeting).

Several times during the event, Buffett mentioned the word "mistake," specifically referring to his own. It came up over and over again throughout the question-and-answer section of the meeting where Becky Quick, the CNBC host, asked questions submitted by members of the virtual crowd.

This isn't something new. I went back through the transcripts of meetings over the past two decades and noticed that Buffett has an unfailing persistence when it comes to noting where he has failed.

This is an amazing characteristic for the chairman of Berkshire – a company that has doubled the returns of the market over the past 40 years. That's a staggering measure of massive wealth creation.

And it is not just that Buffett and Munger have trounced the market over the past 40 years. Over the past year, Berkshire is up more than 70% versus the S&P 500 Index's roughly 45% gain.

One might argue that Buffett and Munger should be patting themselves on the back, not turning a reflective eye inward on what went wrong...

Yet Buffett brought up how he sold a position of his Apple (AAPL) stock prior to the shares hitting their recent highs.

Additionally, Buffett faced questions regarding his decision to buy Precision Castparts and overestimating the company's future earnings. Buffett was also asked about his decision to exit airlines, basically at the bottom of the market in early 2020.

As we now know, these decisions didn't play out in Buffett's favor, even if Berkshire's stock outperformed.

If Buffett's annual meetings teach us anything, it's that long-term success requires an honest and humble look at our own mistakes. Buffett even explicitly stated that more likely than not, he will make many more.

I've made plenty of investing mistakes of my own...

Better I admit them, or I'll never learn from them.

For example, I thought for sure electronics retailer Radio Shack would avoid bankruptcy. But I should have been more careful making predictions about the stock when lawyers got involved...

Radio Shack should have recovered. The company had the cash flows and the assets to work itself out of bankruptcy. However, Radio Shack signed some very bad agreements – draconian debt covenants – so it was prevented from seeing the healthy recovery it could have had.

And once bitcoin fell from about $20,000 to $6,000 in 2018, I thought it would never cross $10,000 again.

Well, I was certainly proven wrong over the past three years... hence why I've stopped making predictions on securities where I have no competitive advantage against the market. It's not like Uniform Accounting or forensic analysis is going to help me predict a buying frenzy based purely on speculation.

When bitcoin crossed $11,000 in 2019, I ran into a colleague who asked me what I thought about my prior prediction that $10,000 was a ceiling and what I thought at that new price point.

What could I do but smile? I politely responded by saying that I realized I had no advantage over the rest of the market in making such a prediction.

The Berkshire shareholder meeting was a great reminder that we all make mistakes. We all should hope to be as comfortable looking at and learning from our own as Buffett has been with his.

Regards,

Joel Litman
May 21, 2021