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Warren Buffett’s mistake did not allow him to earn on Google

Warren Buffett missed out on a huge opportunity to invest in Google at an extremely low cost due to his mistake. As a result, the Oracle of Omaha was unable to benefit from the high returns the company has offered investors since it went public. While this mistake cost him billions of dollars, it also serves as a valuable lesson in humility and in understanding the importance of capitalizing on timely opportunities. Ultimately, this incident serves as a reminder that no one, even the most successful investor, is never immune to error.

The esteemed Warren Buffett told Berkshire Hathaway at the next shareholders meeting that he “made the wrong decisions” when he refused to invest in Amazon and Google (now Alphabet). It’s Warren Buffett’s mistake that happened because he adhered to his long-standing investment principles – and this may mean that the time has come to revise the basic ideas of work.


“I had a very, very, very good opinion about him (talking about Jeff Bezos) when we first met, but I underestimated him,” the billionaire said in a CNBC commentary. “I’ve always been following Amazon from the very first steps. It seems to me that Bezos did something close to a miracle. But the fact is that when it seems to me that something will become a miracle, I don’t invest in it ”.


Why did this Warren Buffett mistake take place? Perhaps this lack of opportunity was facilitated by Buffett’s own limited technological knowledge. Bill Gates, according to Buffett, in a personal conversation recommended that he leave the creaky and clumsy Altavista search engine for Google. In addition, the great investor said that “stupidity” did not allow him to invest in Microsoft in the early stages. In this light, the ignorance of Amazon and Google reflects the investment philosophy that was the basis for the epochal success of Berkshire Hathaway.

Buffett has long encouraged investors to bet solely on enterprises from industries in which they are familiar. And he admitted that when the conversation turned to the two mentioned technological giants, “it would be much more useful if I had some idea of ​​these enterprises”.

Why Buffett did not see the potential of the tech giants

But another point in technical investments fundamentally diverges from Buffett’s strategy. He also noted at the meeting that “he made a mistake, not being able to draw conclusions where I felt that the current prices provide excellent prospects.” This is the result of the Buffett approach, which is based on value investment – the purchase of shares at a price below their real (internal) value.

However, technology companies have been aggressively reassessed by the market for at least 10 years compared to their profits and assets. This comes from the forecast of their full market dominance in the future. Buffett was loyal to companies with monopolistic market positions. But these positions are built differently in a data-based world, in contrast to those industries in which Warren once became the best. Network effects and “feedback effects” act as a new kind of defensive ditch for technical monopolies. But the creation of such “ditches” requires huge long-term costs. Amazon’s early investors had to overcome years of heavy losses, but after that they came under the tsunami of profit.

But just because pseudo-monopolies are good investment options, you should not think that they are good for society. Regulators still figure out what a monopoly is in the digital age, but more and more critics are calling for restrictions on the size and power of the giants on which Buffett would like to bet.


Read also: 3 characteristics and principles in investing from Warren Buffett

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Comments: 1
  1. Nova Russell

    Why did Warren Buffett’s mistake prevent him from capitalizing on the success of Google?

    Reply
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