When you are on your journey to financial independence, you should study psychology. One of the major ways that men like Charlie Munger get rich is that they study how the world works. They study how to manipulate their psyche. After that they study history to learn from the mistakes that others made. When you look at the life of Warren Buffett, this is an interesting case study. People see how he made a greater than sixty billion dollar fortune, and they ask how he made a mistake. His mistake was letting someone who tried to nickel and dime him interfere with his goals in life.
Why Berkshire Hathaway is one of Warren Buffett’s Greatest Mistakes
Warren Buffett has made no secret in interviews that buying Berkshire Hathaway was a mistake. What isn’t mentioned as often is why he made the mistake. When Warren Buffett was younger, a man named Seabury Stanton owned Berkshire Hathaway. As Warren started buying shares due to their low valuation, Stanton and Buffett came to an agreement when Buffett realized that textile mills were not great investments. The agreement was that Buffett could sell a certain amount of shares at a certain price. When Warren went in to sell though, the price he got was 1/8 of a point different than the agreed upon price. This set Warren in a fit that would see him buy a controlling interest in Berkshire so he could fire Stanton. Warren later said this was a 200 billion dollar blunder.
The lessons someone can learn there are important. When someone asks why a 1/8 of a point difference matters, remember that Warren and Charlie have both said that they almost walked away from buying Sees Candy over $100,000. Warren was still thinking of stocks under the strategies of Ben Graham, and those strategies had gotten him excellent returns. This mindset combined with stubbornness resulted in absolute refusals to pay above what Warren had determined the stock was worth. Combine this with the personal pique of being cheated, and you have a recipe for something that can blow up in your face. In this case it meant that Warren gave up hundreds of billions of dollars to get back at someone who cheated him.
How to think of this in your life: The Disraeli Compromise
I don’t want anyone reading this to think that I am criticizing Warren Buffett for the actions he made decades ago. In terms of quality of life, he is in the top five percent. However, I think that it is important to learn from other’s mistakes. You have to know what you want in life. Giving up billions, or millions of dollars, to get back at someone isn’t a great life decision. If you have been cheated, and can’t get over it, I would recommend looking at something called the Disraeli compromise. In 1986 Charlie Munger gave a speech at Harvard where he reverse engineered how to be miserable in life so that someone could avoid it. In that speech he mentioned, “Disraeli was a British Prime minister who needed an outlet for the anger that he felt at people who wronged him. What he did was instead of acting out in anger towards them, he wrote their names on a sheet of paper, and would review how life took those people down.”
When dealing with people in life who cheat you, sometimes the best thing you can do is walk away. In Warren Buffett’s case, he would be billions of dollars richer. For a lot of people, that resentment won’t cost nearly as much, but life isn’t just financial. You have to look at what the resentment you may be carrying around is costing you in your relationships, and quality of life. The question is, is it worth it? Sometimes, the best option is the Disraeli compromise.