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Even the greatest investors — including Buffett, Druckenmiller — make multi-billion dollar mistakes

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A casual observer may assume the greatest money managers have charmed investing careers filled with success after success.

But that isn’t the case, Ritholtz Wealth Management director of research Michael Batnick explained in his new book “Big Mistakes: The Best Investors and Their Worst Investments,” released on Jun. 6.

Batnick shared key lessons and money-losing investment examples from several legendary managers such as Warren Buffett, Stanley Druckenmiller and Michael Steinhardt.

Buffett may be the most celebrated investor of them all. The investor’s track record is unparalleled. From 1965 to 2017, Berkshire Hathaway’s rising market value generated a 20.9 percent annual return compared to S&P 500’s 9.9 percent, resulting in a cumulative gain of 2,404,748 percent versus the market’s 15,508 percent return.

And even the Oracle of Omaha has made poor investment decisions. Batnick wrote how the investor acquired a 12 percent stake in US Air for $358 million in 1990, which declined by 76 percent in value in a few years. But the mistaken airline position, which eventually recovered, paled in comparison to the loss related to his investment in Dexter Shoes, the writer said.

Buffett bought the shoe company for $433 million of Berkshire Hathaway stock in 1993, a total of about 25,200 shares. Dexter would eventually be worth zero, which cost the investor nearly $6 billion in economic value due to Berkshire Hathaway shares’ appreciation, according to Batnick.

The author quoted Tren Griffin who wrote, “In doing their due-diligence for Dexter Shoes, Buffett and Munger made the mistake of not making sure the business had a moat and being too focused on what they thought was an attractive purchase price.”

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June 15, 2018

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