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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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Markets

40 Stock Market Terms That Every Beginner Should Know

Getting a grasp on the market can be a daunting task for new investors, but this infographic is an easy first step to help in understanding stock market terms.

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40 Stock Market Terms That Every Beginner Should Know

Understanding the stock market can be a daunting task for any new investor.

Not only are there many concepts and technical terms to decipher, but nearly everybody will try to give you conflicting pieces of advice.

For example, if a stock in your portfolio falls in price, should you be accumulating additional shares at a lower price or should you be strategically cutting your losses?

Some experts will tell you one thing, while others will tell you precisely the opposite.

A Place to Start: Terminology

Before you drift into the many debates that the investing pundits are weighing in on, perhaps the most proactive step for a beginner is to simply learn to talk the same language as the pros.

Today’s infographic comes to us from StocksToTrade.com, and it covers the most important stock market terms that every new investor should know and understand. It’s enough to get any beginner on the same playing field, so they can start toying with the more nuanced or complex concepts in the investing universe.

While we don’t agree with the exact definitions of all of the terms, the list is adequate enough to get any new investor off the ground. It covers basic order terms like “bid”, “ask”, and “volume”, but it also goes into concepts like “authorized shares”, “secondary offerings”, “yield”, and a security’s “moving average”.

What’s Next?

Already got a handle on 40 of the most important stock market terms?

Visual Capitalist has a ton of other powerful visual resources for new investors, or anyone else hungry to learn about how markets work:

Crush the above resources, and you’ll be market savvy in no time!

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Gold

A Brief History of Jewelry Through the Ages

Jewelry has been coveted for centuries by many different cultures. Here’s a look at the history of jewelry, and how it’s evolved into a $348B industry.

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Jewelry has been an integral aspect of human civilization for centuries, but it was the discovery and subsequent spread of precious metals and gemstones which really changed the game.

In today’s infographic from Menē, we visualize how the uses and symbolism of jewelry have evolved across time and space to become the industry we’re familiar with today.

Antique, Yet Ageless

There isn’t a single corner of the world that’s untouched by the influence of jewelry.

  • Ancient Egypt
    Gold accompanied the affluent into the afterlife – the famous 1922 discovery of King Tutankhamun’s tomb was filled to the brim with gold jewelry.
  • Ancient Greece and Rome
    Jewelry was used practically, and as a protection against evil. The gold olive wreath design was highly popular during this time.
  • Mesopotamia
    Both men and women in the Sumer civilization wore intricate pieces of jewelry, incorporating bright gems like agate, jasper, or lapis lazuli.
  • Meso-America
    The aristocracy in Aztec culture wore gold jewelry with gemstones to demonstrate their rank. The jewelry also doubled up as godly sacrifices.
  • Ancient India
    The Mughal Empire introduced the combination of gemstones with gold and silver. Today, pure gold jewelry is often gifted to new brides for financial security.
  • Ancient China
    Both rich and poor wore jade jewelry for its durable and protective properties. Pure gold jewelry is making a fashion comeback, doubling as a form of investment.

Modern Jewelry: At a Crossroads

Today, jewelry is at once the very same and vastly different from what it used to be.

The industry is worth upwards of $348 billion per year, and it’s not hard to see why. As an alternative asset, jewelry has grown 138% in value over the last decade – only outperformed by classic cars, rare coins, and fine wine.

However, perceptions of jewelry vastly differ. It’s not a stretch to say that Western jewelry buyers are enamored with diamonds, given their enduring association with special occasions – but it’s interesting to note how that ideal was fabricated.

The Invention of Diamonds

The De Beers Group is well known for making diamonds great again. In the early 1900s, the company had already monopolized the diamond trade and stabilized the market, but they faced the challenge of marketing diamonds to consumers at all income levels.

The average American considered diamonds an extravagance, preferring to spend money on cars and appliances instead. The concept of engagement rings existed, but weren’t widely adopted. The #1 slogan of the century – “A Diamond is Forever” – transformed all that.

Even as more companies like Tiffany and Co and Cartier entered the playing field, De Beers had set a successful industry standard. But there’s a catch – diamonds are actually:

  • Not all that rare in nature
  • Intrinsically low in value
  • Easily replicated in a lab
  • Decreasing in sales

Despite these caveats, the popularity of diamonds illustrate how Western consumers do not approach jewelry in the same way as Eastern economies, where its function as a store of wealth persists.

The Eastern Gold Standard

In Eastern economies, jewelry often takes the form of pure gold. The reasons behind this difference are surprisingly pragmatic: gold is considered a secure and innate store of wealth that maintains its purchasing value over decades, allowing families to pass wealth from generation to generation.

The rich history of the precious metal has made it a sought-after commodity for centuries, and China and India drive more than half of global gold jewelry demand every year:

YearShare of Demand (India + China)Total Global Jewelry Demand (tonnes)
201457%2510 tonnes
201558%2426 tonnes
201655%2068 tonnes
201757%2201 tonnes
201858%2200 tonnes

Source: Gold Hub – Values have been rounded up to the nearest tonne.

Why are Eastern cultures so attracted to the properties of pure gold?

Part 2 of this series will show why gold is the world’s most incredible metal, and why it’s coveted by billions of people.

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