Warren Buffett’s one of the most well-respected investors of our time. Yet over the decades, even the legend has made some mistakes. Even though I usually focus on learning from his successes, it’s also wise to contemplate how to avoid some of his errors along the way.
Admit when I’m wrong
Buffett invested in the Dexter Shoe Company back the 1990s, paying for it with $443m worth of Berkshire Hathaway stock. The business collapsed under competition, making it a near-total loss. Even though Buffett couldn’t have predicted such a bad outcome, there’s the argument that he could have sold his holding earlier on to avoid such a heavy loss.
Maybe he thought the company would turn around, despite various red flags along the way. Even though I’m a long-term investor, I have to admit that sometimes my view is wrong. Eating humble pie and selling a stock isn’t something I recommend often, but there are certain occasions when I think a stock could fall even further, and it saves me money by cutting the holding and allocating it to another company instead.
Don’t let emotions drive decisions
This relates to Buffett’s purchase of Berkshire Hathaway itself. Initially just a struggling textile business, Buffett admitted he bought it out of spite and sentimentality, not because it was a great investment. The textile side lost money for years before he pivoted Berkshire into insurance and investments.
The lesson for me is to be careful when thinking about buying a company purely out of FOMO (the fear of missing out), or based on some emotion. For example, just because a stock has risen sharply in value in the short term doesn’t guarantee it’s going to keep going.
Waiting too long to act
Procrastination’s a big one I think impacts us all! Buffett admits he missed big opportunities like Google and Amazon early on, despite understanding their potential from Berkshire’s own use of Google ads and Amazon’s retail model.
That’s why I’m thinking about buying MongoDB (NASDAQ:MDB). It’s a company that builds and manages databases. Yet it stores the information in a high-tech way, meaning that it’s easier for developers to build modern applications, especially those handling big data, artificial intelligence (AI) workloads and real-time analytics.
Put another way, some people think it’s tapping into a vast potential market. Global data’s doubling every two years, and companies need scalable, flexible databases. MongoDB’s architecture is built for this environment. AI processes need high-performance databases, and AI as a target market’s not only huge, but growing.
I like the business model, as customers pay on a subscription- and usage-based model. This provides reliable cash flow and makes it easier to forecast future revenue. The stock’s down 11% over the past year. One factor in this was disappointing guidance following financial results earlier this year. Even though the forecasts were still positive, investors set a high bar for the pace of growth being expected. This remains a risk going forward.
I’m seriously thinking about buying the stock soon, to avoid the potential mistake of missing out on what could be a great long-term opportunity.
