Berkshire shares shake the Buffett blues with new all-time highs

AUDIENCE MEMBER: Mr. Munger, I know you're fond of evoking humility to promote rational thought. So my question is, what's the most recent business mistake that you've made, Mr. Munger, and why did it occur? (Laughter)

WARREN BUFFETT: I'm going to take notes on this one. (Laughter)

CHARLIE MUNGER: The mistakes that have been most extreme in Berkshire's history are mistakes of omission. They don't show up in our figures. They show up in opportunity costs.

In other words, we have opportunities, we almost do it. In retrospect, we can tell that we were very much mistaken not to do it.

In terms of the shareholders, those are the ones in our history that it really cost the most. And very few managements do much thinking or talking about opportunity costs.

But Warren, we have blown —

WARREN BUFFETT: Billions and billions and billions. I might as well say it. (Laughter)

CHARLIE MUNGER: Right, right. And we keep doing it. (Laughter)

WARREN BUFFETT: Some might say we're getting better at it. (Laughter)

CHARLIE MUNGER: I don't like mentioning the specific companies, because the — you know, we may, in due course, want to buy them again and have an opportunity to do so at our price.

But practically everywhere in life, and in corporate life, too, what really costs, in comparison with what easily might have been, are the blown opportunities. I mean, it just — it's an awesome amount of money...

WARREN BUFFETT: I might add that when we speak of errors of omission, of which we've had plenty, and some very big ones, we don't mean not buying some stock where we — a friend runs it, or we know the name and it went from one to 100. That doesn't mean anything. It's only —

We only regard errors as being things that are within our circle of competence.

So if somebody knows how to make money in cocoa beans, or they know how to make money in a software company or anything, and we miss that, that is not an error, as far as we're concerned.

What's an error is when it's something we understand, and we stand there and stare at it, and we don't do anything.

Or worse yet, what really gets me is when we do something very small with it. We do an eyedropper's worth of it, when we could do it very big.

Charlie refers to that elegantly when I do that sort of thing as when I'm sucking my thumb. (Laughter)

And there really — I mean, we have been thumbsuckers at times with businesses that we understood well.

And it may have been because we started buying, and the price moved up a little, and we waited around hoping we would get more at the price we originally started — there could be a lot of things.

But those are huge mistakes. Conventional accounting, of course, does not pick those up at all. But they're in our scorebook.