Warren Buffet’s biography The Snowball is a fascinating read. The following chapters will show you how Warren Buffet made his first profit from buying stocks at the age of 11, and his first big mistake.
“A year later, he brought forth the kernel of his reality. To his family’s amusement and surprise, by the spring of 1942, his hoard totaled $120.
Enlisting his sister Doris as a partner, he bought three shares of a stock for each of them, costing him $114.75 for his three shares of Cities Service Preferred.11
“I didn’t understand that stock very well when I bought it,” he says; he knew only that it was a favorite stock that Howard had sold to his customers for years.12
The market hit a low that June, and Cities Service Preferred plunged from $38.25 to $27 a share. Doris, he says, “reminded” him every day on the way to school that her stock was going down. Warren says he felt terribly responsible. So when the stock finally recovered, he sold at $40, netting a $5 profit for the two of them. “That’s when I knew that he knew what he was doing,” Doris recalls. But Cities Service quickly soared to $202 a share. Warren learned three lessons and would call this episode one of the most important of his life. One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit. He learned these two lessons by brooding over the $492 he would have made had he been more patient. It had taken five years of work, since he was six years old, to save the $120 to buy this stock. Based on how much he currently made from selling golf balls or peddling popcorn and peanuts at the ballpark, he realized that it could take years to earn back the profit he had “lost.” He would never, never, never forget this mistake.
And there was a third lesson, which was about investing other people’s money. If he made a mistake, it might get somebody upset at him. So he didn’t want to have responsibility for anyone else’s money unless he was sure he could succeed.”