1 Crucial Piece of Investing Advice Warren Buffett Just Shared

Warren Buffett recently released his much-anticipated annual letter to Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) shareholders. These letters from the conglomerate's billionaire CEO are considered must-reads by millions of investors and often contain multiple valuable pieces of investing wisdom.

In Buffett's letters, the legendary investor often shares an investing lesson or two he's learned along the way. And in the latest version of the letter, the first topic Buffett discussed wasn't about how well Berkshire's businesses are doing, or how the company recently broke through a $1 trillion market cap for the first time. Instead, Buffett chose to focus on the mistakes he's made.

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Berkshire's recent mistakes

Buffett discussed several different types of mistakes in this year's letter. As he said, "Sometimes I've made mistakes in assessing the future economics of a business I've purchased for Berkshire -- each a case of capital allocation gone wrong." He went on to say that this applies to both acquisitions as well as stock investments, and that there are some glaring examples from each category, even from the recent past.

Just to name a couple examples, Buffett has admitted to overpaying for Berkshire's acquisition of Precision Castparts and also admitted that he was far too optimistic when Berkshire bought IBM stock -- a position that he exited several years ago.

Buffett went on to say that he has made mistakes in the past when assessing the managers Berkshire is hiring, specifically when it comes to managers "delaying the correction of mistakes."

This certainly isn't the first time Buffett has acknowledged his mistakes. In fact, pointing out what he and Berkshire's team have done wrong has been a recurring theme over the years. Buffett revealed that during the 2019-23 period, he has used the words "mistake" or "error" a total of 16 times in his annual letters.

Just to quickly recap some of these:

• In 2020, Buffett attributed an $11 billion writedown to paying too much for Precision Castparts.
• In 2021, Buffett discussed how it is easier to deal with a mistake in a publicly traded stock investment than a private business.
• In 2022, Buffett discussed how over long periods of time, winning investments can overshadow relatively minor mistakes.

Buffett has even referred to his decision to take control of Berkshire Hathaway 60 years ago as perhaps his biggest investing mistake ever, saying that if he had simply started buying insurance companies instead of starting with a failing textile manufacturer, he would have made far more money. As Buffett discussed in his 2023 letter, Berkshire's late vice chairman, Charlie Munger, was the one who pointed that mistake out and helped set Warren Buffett on the path to building the modern-day Berkshire Hathaway.

An important part of investing

Perhaps the most valuable lesson to learn from Buffett's discussion is that all investors make mistakes. Nobody gets home runs (or even base hits) 100% of the time.

The important thing is to learn from your mistakes and become a better investor as a result. I've made some big mistakes in my portfolio, such as selling Tesla stock in 2013 after it had roughly tripled from its IPO price. But that lesson taught me to trust my winners and hang onto them, and I probably wouldn't have some of my largest wins today if I hadn't made that mistake and learned from it.

The bottom line is that one of the biggest mistakes you can make as an investor is expecting to get it right all the time. It's important to avoid making big mistakes, such as putting all of your money into a single speculative stock, but mistakes like getting a business's valuation wrong, selling a winner too soon, and buying stocks while the market is too expensive are important lessons -- not things to be ashamed of.

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Matt Frankel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, International Business Machines, and Tesla. The Motley Fool has a disclosure policy.