(Extracted from University of Berkshire Hathaway by Daniel Pecaut and Corey Wrenn)
Munger observed that the most extreme mistakes in Berkshire’s history show up as opportunity costs.
… In his younger days, Munger was offered 300 shares of Belrich Oil, which, by his analysis, offered no possibility of losing money and a large possibility of making money. He bought. Three days later, he was offered 1500 shares, which he refused since he’d have to sell something to buy them.
Munger claims that mistake, traced through to today, cost him $200 million.
Buffett qualified the notion of mistakes as those things within their circle of competence. Missing a big move in cocoa futures is not an error since that is something they know little about. An error is when it’s something they understand, but then they don’t act on it in a big way.