Collection: Warren Buffett - #23 | "You Don’t Have To Make It Back The Way You Lost It"
Are you there? Hi, I’m Susie Taylor (PH) from Lincoln, Nebraska.
By way of explaining — we wrote down the value of USAir, reflecting our investment’s current market value.
You had a good explanation in your report as to why the economics of the business are unattractive. And I presume, given the choice, we wouldn’t do it over again.
I think that’s a fair assumption. (Laughter)
I should mention, anybody wanted to ask about USAir, we put them in the other room, just so you’ll know why. (Laughter)
And then the second part is better.
But I’m watching you. I can see you on the monitor. (Laughs)
And quoting from your profound statement, “You don’t have to make it back the way you lost it.”
Wouldn’t it be a good idea to put that 89 million in something you are really behind as opposed to USAir?
Well, that’s a very good question. Because it is true that a very important principle in investing is you don’t have to make it back the way you lost it. And in fact, it’s usually a mistake to make — try and make it back the way that you lost it.
And we have — when we write our — an investment down, as we did with USAir at 89 million, we probably think it’s worth something more than that. But we tend to want to be on the conservative side. But it’s worth a whole lot less than we paid.
And the nature of that preferred, as well as other private issues we’ve bought, usually makes it quite difficult to sell. That’s one of the things we know going in.
When we bought preferred, some people thought that we were getting unusually favorable terms. I haven’t heard from them lately on USAir, but — (Laughter)
But one of the considerations in that is that, if you buy a hundred shares of a preferred that’s being offered through a securities firm, from the same issuer, you can sell it tomorrow. And we are restricted, in some ways legally, and in other ways simply by the way that markets work, from disposing of holdings like that.
And we know that there’s an extra cost involved to us if we should try to sell, or it may be impossible.
And that’s not of great importance with us because we don’t buy things to sell, but it’s of some importance.
And we are not in the same position owning our Series A preferred of USAir as we would be if we bought a thousand shares or 5,000 shares of the Series B preferred, I believe it is, that trades on the New York Stock Exchange. That would be very saleable.
And our preferred could well even be saleable at a price modestly above what we carry it for, but it would require — it would not be very easy to do.
It might — if it were do — if we went about to do it, we could probably — assuming we could do it at all — we could probably get a little more money for it.
But it would not be easy to do, partly because of legal restrictions. Charlie and I are on the board. That complicates things.
We always know something that, just by being on the board, that the public doesn’t know. So, that complicates things.
And in the end, we usually find that dealing with anything where we’ve got fiduciary obligations is, maybe, not practical at all. And if it is, it’s probably more trouble than it’s worth.
Well, it’s certainly been an interesting experience, the USAir experience. (Laughter)
Is that it, Charlie? OK. No, he —
I’d like to repeat that business about not having to get it back the way you lost it. You know, that’s the reason so many people are ruined by gambling.
They get behind and then they feel they have to get it back the way they lost it. It’s a deep part of the human nature.
And it’s very smart just to lick it by will, and little phrases like that are very useful.
Yeah, one of the important things in stocks is that the stock does not know that you own it. You know, you have all these feelings about it. You know, and — (laughter) — you remember what you paid, you know? (Laughter)
You remember who told you about it. All these little things, you know?
And it — you know, it doesn’t give a damn, you know? (Laughter)
It just sits there. And it — you know, a stock at 50, somebody’s paid a hundred, they feel terrible. Somebody else paid 10, they feel wonderful. All these feelings, and it has no impact whatsoever.
And so, it’s — as Charlie says, gambling is the classic example. Someone builds a business over years. You know, that, they know how to do.
And then they go out some place and get into a mathematically disadvantageous game. Start losing it and they think they’ve got to make it back, not only the way they lost it, but that night. And — (laughter) it’s a great mistake.
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"You don't have to make it back the way you lost it." ~Warren Buffett
You can make it back through other ways so why don't you admit your mistakes, reflect and move on?
(Berkshire Hathaway Chairman's Letter 1994)