Audience: Mr. Munger, I know you like to evoke humility to encourage rational thinking. So my question is, Mr. Munger, what business mistake have you made recently and why did it happen? (laughs)
Warren Buffett: I’ll take notes on this. (laughs)
Charlie Munger: The most extreme mistake in Berkshire’s history was a mistake of omission. They don’t show up in our numbers. They appear as opportunity costs.
In other words, we have a chance and we can almost make it happen. Looking back, I see that not doing that was a big mistake.
When it comes to shareholders, they are the most costly shareholders in our history. And few business owners think or talk about opportunity costs.
But Warren, we were blown away—
Warren Buffett: Billions, billions, billions. It might be okay to say that. (laughs)
Charlie Munger: Yes, that’s right. And we continue to do so. (laughs)
Warren Buffett: Some might say we’re getting better at it. (laughs)
Charlie Munger: I don’t like to mention specific companies. Because, you know, over time we may want to buy that company again and have the opportunity to buy at that price.
But almost everywhere in life, and even in corporate life, the real cost is the missed opportunity compared to what could have easily been. I mean, that’s a huge amount of money…
Warren Buffett: Just to add, when we talk about errors of omission, and we’ve experienced them a lot and we’re talking about some very big mistakes, that doesn’t mean we don’t buy stocks that we run, or that our friends run, or that we know the name of and that go from 1 to 100. It doesn’t mean anything. It’s just—
We only consider errors to be within our abilities.
So if someone knows how to make money with cocoa beans, or how to make money with a software company, etc., and we miss it, that’s not wrong as far as we’re concerned.
The mistake is when we stand there, stare at it, and do nothing, even though it is something we understand.
Even worse, what really gets me hooked is when I do very small things with it. When you can do something really big, it does the equivalent of a dropper.
Charlie elegantly refers to when I’m doing that as when I’m sucking my fingers. (laughs)
And in fact, we have sometimes had bad feelings about businesses that we understand well.
Maybe it’s because we started buying and were waiting in the hope that the price would rise a little and we would be able to buy more at the original price. Many things could have happened.
But those are big mistakes. Of course, traditional accounting doesn’t take them into account at all. But they’re in our scorebook.
