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Warren Buffett’s Biggest Wins & Fails

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Warren Buffett’s investing track record is nearly impeccable.

Over his lifetime, Buffett has built Berkshire Hathaway into one of the biggest companies in American history, amassed a personal fortune of over $80 billion, and earned acclaim as one of the world’s foremost philanthropists.

But in a 75-year career, it’s no surprise that even Buffett has made the odd blunder – and there’s one that he claims has ultimately costed him an estimated $200 billion!

The Warren Buffett Series
Part 4: Buffett’s Biggest Wins and Fails

Today’s infographic highlights Buffett’s investing strokes of genius, as well as a few decisions he would take back.

It’s the fourth part of the Warren Buffett Series, which we’ve done in partnership with finder.com, a personal finance site that helps people make better decisions – whether they want to dabble in cryptocurrencies or become the next famous value investor.

The Warren Buffet Series: The Early YearsInside Warren Buffett's BrainPart 3Warren Buffett's Biggest Wins and FailsComing soon

Warren Buffett's Biggest Wins and Fails
Note: New series parts will be released intermittently. Stay tuned for future parts with our free mailing list.

How did Buffett go from local paperboy to the world’s most iconic investor?

Here are the backstories behind five of Warren’s biggest acts of genius. These are the events and decisions that would propel his name into investing folklore for centuries to come.

Buffett’s 5 Biggest Wins

From making shrewd value investing calls to taking advantage of misfortune in the salad oil market, here are some of the stories that are Buffett classics:

1. GEICO (1951)
At 20 years old, Buffett was attending Columbia Business School, and was a student of Benjamin Graham’s.

When young Buffett learned that Graham was on the board of the Government Employees Insurance Company (GEICO), he immediately took a train to Washington, D.C. to visit the company’s headquarters.

On a Saturday, Buffett banged on the door of the building until a janitor let him in, and Buffett met Lorimer Davidson – the future CEO of GEICO. Ultimately, Davidson spent four hours talking to this “highly unusual young man”.

He answered my questions, taught me the insurance business and explained to me the competitive advantage that GEICO had. That afternoon changed my life.

– Warren Buffett

By Monday, Buffett was “more excited about GEICO than any other stock in [his] life” and started buying it on the open market. He put 65% of his small fortune of $20,000 into GEICO, and the money he earned from the deal would provide a solid foundation for Buffett’s future fortune.

Although Buffett sold GEICO after locking in solid gains, the stock would rise as much as 100x over time. Buffett bought his favorite stock again a few years later, loaded up further during the 1970s, and eventually bought the whole company in the 1990s.

2. Sanborn Maps (1960)
This early deal may not be Buffett’s biggest – but it’s the clearest case of Benjamin Graham’s influence on his style.

Sanborn Maps had a lucrative business around making city maps for insurers, but eventually its mapping business started dying – and the falling stock price reflected this trend.

Buffett, after diving deep into the company’s financials, realized that Sanborn had a large investment portfolio that was built up over the company’s stronger years. Sanborn’s stock was worth $45 per share, but the value of the company’s investments tallied to $65 per share.

In other words, these investments held by the company were alone worth more than the stock – and that didn’t include the actual value of the map business itself!

Buffett accumulated the stock in 1958 and 1959, eventually putting 35% of his partnership assets in it. Then, he became a director, and convinced other shareholders to use the investment portfolio to buy out stockholders. He walked away with a 50% profit.

3. The Salad Oil Swindle (1963)
For a value investor like Buffett, every mishap is a potential opportunity.

And in 1963, a con artist named Anthony “Tino” De Angelis inadvertently set Buffett up for a massive home run. After De Angelis attempted to corner the soybean oil market using false inventories and loans, the market subsequently collapsed.

American Express – the world’s largest credit card company at the time – got caught up in the disaster, and its stock price halved as investors thought the company would fail.

Although everyone else panicked, Buffett knew the scandal wouldn’t affect the overall value of the business. He was right – and bought 5% of American Express for $20 million. By 1973, Buffett’s investment increased ten times in value.

4. Capital Cities / ABC (1985)
In the 1980s, corporate raiders and takeover madness reigned supreme.

The massive TV network ABC found itself vulnerable, and sold itself to a company that promised to keep its legacy intact. Capital Cities, a relative unknown and a fraction of the size, had somehow managed to buy ABC.

The CEO of Cap Cities, Tom Murphy – one of Buffett’s favorite managers in the world – gave Warren a call:

Pal, you’re not going to believe this. I’ve just bought ABC. You’ve got to come and tell me how I’m going to pay for it.

– Tom Murphy, Capital Cities CEO

Berkshire dropped $500 million to finance the deal. This turned Buffett into Murphy’s much-needed “900-lb gorilla” – a loyal shareholder that would hold onto shares regardless of price, as Murphy figured out how to turn the company around.

It turned out to be a fantastic gamble for Buffett, as Capital Cities/ABC sold to Disney for $19 billion in 1995.

5. Freddie Mac (1988)
Buffett started loading up on shares of Freddie Mac in 1988 for $4 per share.

By 2000, Buffett noticed the company was taking unnecessary risks to deliver double-digit growth. This risk, and its short-term focus, turned Buffett off the company. As a result, at a share price close to $70, he sold virtually all of his holdings, enjoying a return of more than 1,500%.

I figure if you see just one cockroach, there’s probably a lot.

– Warren Buffett

Later on, Freddie Mac’s business would collapse in the housing crisis, only to be taken over by the U.S. federal government. Today, its stock sells for a mere $1.50 per share.

Buffett’s Blunders

Over the course of 75 years, it’s not surprising that even Buffett has made some serious mistakes. Here are his costliest ones:

1. Berkshire Hathaway (1962)
When Buffett first invested in Berkshire Hathaway, it was a fledgling textile company.

Buffett eventually tried to pull out, but the company changed the terms of the deal at the last minute. Buffett was spiteful, and loaded up with enough stock to fire the CEO that deceived him.

The textiles business was terrible and sucked up capital – and Berkshire unintentionally would become Buffett’s holding company for other deals. This mistake, he estimates, costed him an estimated $200 billion.

2. Dexter Shoes (1993)
Dexter Shoe Co. had a long, profitable history, an enduring franchise, and suberb management. In other words, it was the exact kind of company Buffett liked.

Buffett dropped $433 million in 1993 to buy the company, but the company’s competitive advantage soon waned. To make matters worse, Warren Buffett financed the deal with Berkshire’s own stock, compounding the mistake hugely. It ended up costing the company $3.5 billion.

To date, Dexter is the worst deal that I’ve made. But I’ll make more mistakes in the future – you can bet on that.

– Warren Buffett

Later on, Buffett would say that this deal deserved a spot in the Guinness Book of World Records as a top financial disaster.

3. Amazon.com (2000s)
Buffett says not buying Amazon was one of his biggest mistakes.

I did not think [founder Jeff Bezos] could succeed on the scale he has. [I] underestimated the brilliance of the execution.

– Warren Buffett

Given that Amazon has shot up in value to become one of the most valuable companies in the world, and that Jeff Bezos is by now the far richest person globally, it’s fair to say this whiff continues to haunt Buffett to this day.

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Economy

The $300 Billion Counterfeit Goods Problem, and How It Hurts Brands

Every year, the global economy loses over $300 billion from the sale of counterfeit goods. Here are the problems created by this, and why they matter.

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When you are walking along the boardwalk on vacation, you know it’s a “buyer beware” type of situation when you buy directly from a street vendor.

Those Cuban cigars are probably not Cubans, the Louis Vuitton bag is a cheap replica, and the Versace sunglasses too cheap to be the real thing.

But what if you placed an order for something you thought was truly legitimate, and the fake brand had you fooled? What if this imitation product fell apart in a week, short-circuited, or even caused you direct harm?

Can you Spot a Fake?

Today’s infographic comes to us from Best Choice Reviews, and it highlights facts and figures around counterfeit goods that are passed off as quality brands, and how this type of activity damages consumers, businesses, and the wider economy.

The $300 Billion Counterfeit Goods Problem, and How It Hurts Brands

In 2018, counterfeit goods caused roughly $323 billion of damage to the global economy.

These fake products, which pretend to by genuine by using similar design and packaging elements, are not only damaging to the reputations of real brands – they also lead to massive issues for consumers, including the possibility of injury or death.

A Surprisingly Widespread Issue

While it’s easy to downplay the issue of fake goods, it turns out that the data is pretty clear on the subject – and counterfeit goods are finding their way into consumer hands in all sorts of ways.

More than 25% of consumers have unwillingly purchased non-genuine goods online – and according to a test by the U.S. Government Accountability Office, it was found that two of every five brand name products they bought online (through 3rd party retailers) were counterfeits.

Some of the most common knockoff goods were as follows:

  • Makeup – 32%
  • Skincare – 25%
  • Supplements – 22%
  • Medication – 16%
    • Aside from the direct impact on consumers and brands themselves, why does this matter?

      The Importance of Spotting Fakes

      Outside of the obvious implications, counterfeit activity can open up the door to bigger challenges as well.

    • Economic Impact
      On a macro scale, the sale of counterfeit goods can snowball into other issues. For example, U.S. accusations of Chinese manufacturers for stealing and reproducing intellectual property has been a major driver of tariff action.
    • Unsecure Information
      Counterfeit merchants present higher risks for credit card fraud or identity theft, while illegal download sites can host malware that steals personal information
    • Criminal Activity
      Funds from illicit goods can also be used to help bankroll other illegal activities, such as extortion or terrorism.
    • Unsafe Problems
      It was found that 99% of all fake iPhone chargers failed to pass critical safety tests – and 10% of medical products are counterfeits in developing countries, which can raise the risk of illness or even death.

    The issue of fake goods is not only surprisingly widespread in the online era, but the imitation of legitimate brands can also be a catalyst for more serious problems.

    As a consumer, there are several things you can do to increase the confidence in your purchases, and it all adds up to make a difference.

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Bitcoin

The Beginning of a Bitcoin Bull Run?

After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — going on a 150% bull run since its lows in December 2018.

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The Beginning of a Bitcoin Bull Run?

After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — rising more than 150% from its lowest point in December 2018.

In its heyday, Bitcoin had surpassed $10,000 in early December 2017, before briefly crossing the $20,000 mark for a single day on December 17th. A year later, the digital currency had fallen back to Earth, dropping below $3,200.

Now that the dust of that wild speculative frenzy has settled, Bitcoin is back on the upswing. What could be causing this most recent surge in growth?

We look at four possible explanations for the Bitcoin bull run, as originally outlined by Aaron Hankin at MarketWatch:

Technical Milestones

Bitcoin has seen several technical milestones this year, such as surpassing the psychological barrier of $5,000 in early 2019, breaking the 200-day moving average, and scoring the golden cross (when the 50-day moving average crosses above the 200-day moving average).

Widespread Adoption

Bitcoin is experiencing a steady increase in adoption across several markets. The term Bitcoin has become a household name — even if people don’t understand what it does, they know what it is.

Companies such as Starbucks, Microsoft, and Amazon, and Nordstrom are looking for ways to integrate cryptocurrencies into daily transactions for faster payment clearance, innovative rewards programs, and efficient customer service interactions.

bitcoin merchants

Shifting Sentiments

Bitcoin has possibly seen a shift in public perception. There have been fewer negative articles about Bitcoin and cryptocurrencies, and the news stories that are negative no longer have as big of an impact as they once did.

When Binance announced hackers stole $40 million in bitcoin and when accusations of an $850-million cover-up were leveled against Bitfinex and Tether, the Bitcoin bull run barely flinched and continued to climb.

Wavering Gold Investment

Investor confidence in gold has been more stagnant in recent times. To capitalize on this, Grayscale Investments (of Digital Currency Group) posted a campaign in May 2019 promoting Bitcoin as an ideal alternative to gold because it is borderless, secure, and more efficient for storing value.

Despite the World Gold Council’s response denying those claims, the Grayscale Bitcoin Trust saw OTC Markets Group’s highest trading volumes five days later.

Where to from here?

After a long skid, it appears Bitcoin is showing signs of life again. Bitcoin’s price can be highly volatile, so it remains to be seen whether this is the beginning of a bull run, or whether this is just another bump in the roller coaster ride.

Editor’s note: The price of Bitcoin has fallen to $7,100 at time of publishing and will likely continue to experience extreme volatility. However, even at a price of $7,100, this is still a 120% increase from lows in Dec 2018. As well, an earlier version of this graphic had incorrect dates on the timeline. That has now been corrected.

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