📖Warren Buffett

Admit Mistakes

🌿 Intermediate★★★★☆

Recognize sunk costs: abandoning a failing investment beats endlessly repairing it.

💬

Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

— 1985 Berkshire Hathaway Letter to Shareholders，1985

🏠 Everyday Analogy

Just as it is wiser to turn around immediately and find the correct route when driving down the wrong road—rather than stubbornly continuing and wasting more time and fuel—the same principle applies to investing. When you realize you have bought the wrong stock, it is more prudent to admit the mistake, sell to cut losses, than to hold on stubbornly until the end.

📖 Core Interpretation

Admitting mistakes is Warren Buffett's most underrated quality. In his letters to shareholders, he has publicly acknowledged his investment errors on numerous occasions.
💎 Key Insight：Pride makes investors hold losing positions, hoping to "get back to even." Buffett warns against this — if a business is fundamentally broken, no amount of patience will fix it. The capital trapped in a bad investment has an opportunity cost: it could be earning returns elsewhere. Cut losses on broken theses and redeploy capital into better opportunities.

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❓ Why It Matters

Why is admitting mistakes so crucial? 1. Avoiding the "sunk cost fallacy" 2. Maintaining objective judgment 3. Learning and improving 4. Building trust

🎯 How to Practice

Major mistakes admitted by Warren Buffett: the $3.5 billion loss on Dexter Shoe, Berkshire Hathaway's years of persisting in the wrong industry with its textile mill, buying ConocoPhillips at a high price, and misjudging IBM.

🎙️ Master's Voice

If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.
Buffett rarely sells. His philosophy is to buy wonderful businesses and hold them forever. However, he does sell when the original thesis is broken or when better opportunities arise. The key is having selling criteria before you buy.

⚔️ Practical Guide

✅ Decision Checklist

  • Has the original investment thesis broken?
  • Has the competitive position deteriorated?
  • Is management no longer aligned with shareholders?
  • Is there a significantly better opportunity?

📋 Action Steps

  1. Define selling criteria before buying
  2. Review investments against original thesis
  3. Sell when facts change, not prices
  4. Don't sell just because the price went up

🚨 Warning Signs

  • Selling because of price drop without thesis change
  • No defined selling criteria
  • Selling winners to buy losers
  • Trading based on price movements

⚠️ Common Pitfalls

✕Admitting mistakes is a sign of weakness — it is a manifestation of wisdom and integrity.
✕Outstanding investors don't make mistakes - everyone makes mistakes, but what matters is how you handle them.

📚 Case Studies

1
Dexter Shoe Company (1985)
Warren Buffett publicly called it "the dumbest investment."
✨ Outcome：Paying with Berkshire stock amplified the loss to $3.5 billion.
2
Aviation Stocks in 2020 (2020)
Sold at a loss during the early stages of the pandemic.
✨ Outcome：Later admitted to a misjudgment.

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