Warren Buffett, known as the “Oracle of Omaha,” is one of history’s most successful investors, but even legendary figures make significant mistakes. His journey to billionaire status wasn’t without substantial missteps that cost him billions and taught him invaluable lessons about the dangers of emotional decision-making, poor timing, and inadequate research.
From 1962 to 2025, these blunders demonstrate that even the most skilled investors can fall victim to common pitfalls. As Buffett himself wisely noted, “It’s good to learn from your mistakes, but it’s better to learn from other people’s mistakes.” By examining these five significant investment errors, we can gain insights into every investor’s psychological and strategic challenges, regardless of their experience level.
Here are Warren Buffett’s five biggest blunders on his path to becoming a billionaire:
1. The Emotional Purchase: Berkshire Hathaway (1962-1965)
Buffett’s most famous mistake began in 1962 when he purchased shares in Berkshire Hathaway, a struggling textile company. Initially, he planned to profit from selling the company’s mills, but the investment quickly turned personal.
When Berkshire’s management offered to buy back his shares at a lower price than previously agreed, Buffett felt cheated and responded emotionally. Instead of walking away, he aggressively purchased a controlling stake, took over the company, and fired the manager who had crossed him.
This emotional decision tied Buffett to a failing business in a declining industry. The textile operations lost money for years, requiring significant resources to manage before he eventually transformed Berkshire into the holding company we know today. Buffett later called Berkshire Hathaway “the dumbest stock I ever bought,” estimating it cost him approximately $200 billion in potential gains had he invested those resources in more profitable ventures or started to build a corporate conglomerate from scratch instead of converting a bankrupt textile mill into what it is today.
The lesson here is clear: avoid letting emotions like anger or pride drive investment decisions. Focus on businesses with strong fundamentals rather than trying to “fix” failing enterprises out of spite or stubbornness.
2. The $3.5 Billion Shoe Disaster: Dexter Shoe Co. (1993)
In 1993, Buffett acquired Dexter Shoe Company for $433 million, paying with Berkshire Hathaway stock rather than cash. He believed the company possessed a durable competitive advantage in the shoe manufacturing. However, foreign competition rapidly eroded Dexter’s market position, and the business collapsed within a few years.
The mistake became even more costly because Buffett used Berkshire stock for the purchase. As Berkshire’s stock price soared over the following decades, the opportunity cost of this transaction ballooned to $3.5 billion for shareholders. Buffett described this investment as a “Guinness Book of World Records” financial disaster, acknowledging the economic loss and the human cost of 1,600 job losses in Maine.
This blunder highlights the importance of thoroughly assessing a company’s competitive landscape before making significant investments. Sustainable competitive advantages are critical for long-term success, and overpaying with valuable assets like appreciating stock can amplify mistakes exponentially.
3. Terrible Timing: The ConocoPhillips Oil Bet (2008)
Buffett’s 2008 investment in ConocoPhillips demonstrated the dangers of poorly timed commodity bets. He invested heavily in the oil company, betting on sustained high oil prices just before the 2008 financial crisis struck. When oil prices plummeted during the market crash, Berkshire suffered a $1.5 billion loss.
Buffett openly admitted to “terrible timing” and acknowledged his failure to anticipate the severity of the market downturn. While he eventually mitigated some damage by reducing his position over time, the investment was a costly lesson about the unpredictability of commodity markets and the importance of considering macroeconomic risks.
This mistake underscores the need for caution when making commodity-based investments, especially during periods of high price momentum. Even experienced investors can struggle to time markets effectively, making diversification and careful risk assessment essential.
4. The $2 Billion Energy Gamble: Energy Future Holdings (2007)
In 2007, Buffett invested $2 billion in bonds of Energy Future Holdings, betting that rising natural gas prices would make the company’s coal-based power plants profitable. Unfortunately, natural gas prices fell instead of rising, and the company filed for bankruptcy in 2014. Berkshire sold the bonds in 2013, realizing an $873 million loss.
Buffett later admitted he made this decision without consulting his longtime partner, Charlie Munger, a departure from their usual collaborative approach. He also acknowledged miscalculating the risk-reward ratio of this speculative bet on commodity prices. The investment represented a near-total loss and highlighted the dangers of making significant decisions in isolation.
This blunder emphasizes seeking second opinions on significant investments and carefully evaluating gain-loss probabilities, particularly in volatile energy-related industries. Even the most successful investors benefit from collaborative decision-making and thorough risk analysis.
5. Hesitation Costs: The Tesco Investment (2012-2014)
Buffett’s investment in UK grocer Tesco demonstrated how hesitation can compound investment losses. By 2012, Berkshire held over 5% of the company, but warning signs soon emerged. Tesco faced declining market share, shrinking margins, and an accounting scandal that damaged its reputation.
Despite these clear negative signals, Buffett delayed selling his position. When Berkshire finally exited in 2014, the investment had generated a $444 million loss. Tesco’s stock price had dropped nearly 50% due to competitive pressures and internal problems. Buffett admitted that an attentive investor would have sold much earlier.
This mistake illustrates that conviction is as crucial for selling as buying. When negative signals emerge, decisive action is necessary to prevent small losses from becoming large ones. Holding onto deteriorating investments out of hope or stubbornness can significantly compound losses.
Conclusion
These five blunders reveal universal investing pitfalls that even the world’s most successful investor couldn’t avoid: emotional decision-making, misjudging competitive advantages, poor market timing, speculative betting, and hesitation to exit losing positions. What sets Buffett apart is his willingness to admit these mistakes publicly and learn from them systematically.
Despite these setbacks, Buffett’s focus on long-term value investing and the power of compounding led him to achieve billionaire status by age 56. His transparency about failures demonstrates that successful investing isn’t about avoiding all mistakes but learning from them and maintaining discipline over time.
These lessons emphasize the importance of patience, thorough research, and disciplined decision-making for investors at any level. By studying these errors, we can better navigate the psychological and strategic challenges that make investing both challenging and rewarding.