Reading through the histories of Warren Buffett and Charlie Munger, it would be easy to conclude that these two billionaires have never lost money on an investment. It seems everything they touch turns to gold.
However, Buffett and Munger have made mistakes in the past, but these mistakes have been relatively small compared to the profits they’ve booked over the years.
Charlie Munger — Part Two: Quality Over Value
Charlie Munger On One Of His Biggest Mistakes Bell rich oil
One of these mistakes was described by Charlie Munger at the Daily Journal Corp annual meeting. Munger was answering a shareholder who asked him for an example of an investment decision he’d made during his career that had worked out in his favor, instead of answering directly, Munger provided the story of an investment failure because “I believe in rubbing my nose in failure”.
This is the story not of a failed investment but of a missed opportunity, the opportunity of Bell Rich Oil. As Munger describes:
“A guy called me offering 300 shares of Bell Rich Oil and I had the cash and I said, “sure, I’ll take the listing.”“It was selling there maybe a fifth of what the oil companies were. They owned the oil field. So I brought it. Then he called me back and said, “I’ve got 1,500 more.” I didn’t have the money on hand. I had to sell something. I thought about it and said, “hold it for 10 minutes and I’ll call you back.” I thought about it for 10 minutes and called him back and didn’t buy it.”
As it turns out, this was the wrong decision:
“Well, Bell Rich Oil sold about 35 times the price I was going to pay within a year and a half.”“It was a really dumb decision.”
So, what was Munger’s take away from this one disastrous event:
“You don’t get that many great opportunities in a lifetime. When life finally gave me one, I blew it. So I tell you that story to say you are no different from me. You’re not going to get that many really good ones -- don’t blow your opportunities. They are not that common, the ones that are clearly recognizable with virtually no downside and big upsides.”“Don’t be too timid, when you really have a cinch. Go at life with a little courage. There’s an old word commonly used in the south that I’d never hear anybody use now, except myself and that’s gumption. I would say what you need is intelligence plus gumption.”
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