Warren Buffett is perhaps the most famous investor of all time. His investing record speaks for itself, but it doesn’t mean he’s never made a mistake.
In fact, there are two critical mistakes he has made that potentially cost him billions of dollars. The best investor of our time wants you to avoid his errors.
Never buy these stocks Buffett is well known for understanding which types of businesses make good investments. He likes durable brands that have consistent competitive advantages that last for decades. But every now and then, he forgets that.
“The airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in,” he explained. “You’ve got huge fixed costs, you’ve got strong labor unions and you’ve got commodity pricing. That is not a great recipe for success.”
Buffett was so adamant about the industry that he swore he’d never invest again.
By 2014, he abandoned his own warnings, becoming a top shareholder of four different airlines.
To be sure, the industry appeared to be turning a corner. Air Canada (TSX:AC) stock rose 50 times in value over a handful of years as competition rationalized. No longer was the company trying to grow as fast as possible. Instead, it opted to preserve market share and pricing, which led to long-term profits that sent the stock soaring.
When the coronavirus hit, Buffett unloaded his airline stocks at a billion-dollar loss. He called it a giant mistake.
Some industries are simply not designed for shareholders. Listen to expert advice and stay away from airline stocks forever.
Buffett now loves this stock Tech stocks weren’t always a value investor thing. That changed in recent years when several famous value investors jumped in.
“I made the wrong decisions,” Buffett explained in 2018 when he described his failure to invest in Amazon (NASDAQ:AMZN).
“I made the mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated,” he lamented.
The biggest mistake was not realizing how powerful these business models could become. In hindsight, Buffett wished he bet big on Amazon. The same could be said of stocks like Shopify, which run a very similar strategy.
The trick is that stocks like Amazon and Shopify become winner-takes-all markets. By aggregating buyers and sellers, Amazon grew to a size where no one could catch up.
Today, the majority of U.S. shoppers turn to Amazon first when buying goods online. Shopify is replicating this success within the independent e-commerce segment.
Don’t repeat Buffett’s mistake. Be sure to follow through on lucrative tech stock ideas.
The post Warren Buffett: Whatever You Do, Don’t Do This appeared first on The Motley Fool Canada.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Shopify, and Shopify and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Fool contributor Ryan Vanzo has no position in any stocks mentioned.
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