Chapter 26. How to Learn from Mistakes

What we learn from history is that people don't learn from history.[196]

Warren Buffett

Both Warren Buffett and Charlie Munger believe in learning from mistakes. During Berkshire's 1997 annual meeting, Munger said that in the past, Berkshire board members have discussed their mistakes to learn from them. Members brought up one or two important mistakes they had made in their careers. Most of us find it easy to talk about our successes but difficult to talk about our mistakes, and often we attribute our mistakes to bad luck.

Mistakes versus Bad Luck

We should differentiate mistakes from bad outcomes or bad luck. A bad outcome, for example, was the drop in the stock price of Johnson & Johnson when Tylenol was found to be laced with poison and several consumers died.[197] If you had owned Johnson & Johnson stock then, it was bad luck, not a mistake. When Salomon Brothers got into trouble in 1991, Berkshire Hathaway suffered financially, and Buffett also suffered personally when he took over as the CEO of Salomon to sort out the problems. The scandal at Salomon that led to Buffett's involvement was a rare event, and so there was very little to learn from it. It was almost impossible to predict the Salomon scandal. It was simply bad luck.

It is also not a mistake when you consciously decide not to do something that turns out to be good luck. For example, if you do not participate in your office lottery pool and the pool wins a mega-million-dollar jackpot, ...

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