You can learn from Warren Buffett’s first investing mistake

Warren Buffett, chairman and CEO of Berkshire Hathaway, a holding company based in Omaha, Nebraska, is one of the most famous investors in the world, having net value exceeding $145 billion.

^{Image source: Eric Francis | Getty Images. Warren Buffett.}

However, like all successful investors, Buffett had to begin somewhere.

In his biography Snowball: Warren Buffett and the business of lifecreator Alice Schroeder recalls Buffett’s early fascination with money and the necessary lesson he learned from his first investment.

Buffett’s first taste of entrepreneurship was at the age of six when he began selling chewing gum. “I would buy packs of gum from my grandfather and go around door to door selling the stuff,” Buffett tells Schroeder. – I normally did it in the evening.

Eventually, the young entrepreneur turned to selling Coca-Cola, a more profitable enterprise that earned him a nickel every six bottles. They then sold golf balls at Elmwood Park Golf Course and peanuts and popcorn at Omaha University football games.

One day Buffett visited the library and got here across a book called A thousand ways to earn $1000, which opened his eyes to the power of compound interest. Buffett desired to try it for himself.

The following yr, 1942 11-year-old Buffett he saved $120 to purchase his first stock: Cities Service Preferred. He took his sister Doris as a partner and bought three shares for each of them for $114.75.

Unfortunately, the market bottomed out in June and Cities Service Preferred’s stock price plummeted from $38.25 to $27 per share, something Buffett’s sister “reminded” him of every day, Schroeder writes. So when the stock rose enough to make a small profit – $5 per share – Buffett sold.

Cities Service Preferred’s stock price then skyrocketed to $202 per share.

Buffett tells Schroeder that this experience was one of the most significant of his life because it taught him three lessons about investing:

1. Don’t focus too much on the price you paid for the stock.
2. Don’t rush to sell for a small profit.
3. Don’t invest other people’s money if you do not know you can succeed.

That lesson has served Buffett, now 94, well over the years. In August, Berkshire Hathaway’s market value topped $1 trillion for the first time.