"We could see in our own operations how well that Google advertising was working, And we just sat there sucking our thumbs." As Munger said at the Berkshire 2019 shareholder meeting: That would prove to be a costly mistake, as Berkshire passed up the opportunity to invest in the company at its IPO and missed out on a ~5000% return. Around the time of Google’s IPO, Berkshire’s subsidiary GEICO was paying Google $10 a click and despite observing this and understanding the value Google was bringing, they decided to pass. Both openly admit that they missed Google. Take Buffett and Munger and their decision not to invest in Google on the basis they didn’t understand technology. That’s not to say great investors get it right all the time. The ability to be aware of “anchors” when assessing an opportunity is one factor that (in my view) separates average and great investors. It means as an investor we throw out objectivity and rationalism to satisfy our brains desire to get to the answer that “feels” right even where the facts don’t support it. Investors have a view on a particular company and what it does….even if that was the caseĪnchoring bias is dangerous. The stock drops to $40 which represents its intrinsic value but you are unable to sell the stock as you’ve anchored yourself to the $50 price.Ī company upgrades its earnings outlook but investors remain skeptical given a history of underperformance You decide not to sell your investment property as you think house prices in Sydney will continue to go up.Ī stock hits $50, and you don’t sell. Other examples of anchoring bias in an investing context that you may not have considered include: Not a moment I am proud of, but certainly one I will learn from. I had just experienced the impact of anchoring bias and how it affected my decision as a professional investor. He noted despite the obvious merits of the investment, I was still a hard pass. It wasn’t until a peer called me out on it. Listed but experienced material declines in their stock price My initial negative inclination was anchored by my experience in watching a most of the other companies in the sector either:īe acquired for less than they raised from investors, leaving investors with pennies on the dollar in terms of their return – so basically went out of business A number of investors have pulled out of the sector, and therein was the opportunity to invest in a business with strong underlying fundamentals at a reasonable valuation. The issue I encountered was that this business operated in a sector which was heavily out of favour, investors in the past had lost substantial amounts of capital, and while this business had a subscription model it wasn’t B2B SaaS (think B2C, lower gross margins and much higher churn). ![]() Despite this, I was immediately negatively disposed to the investment. Recently, I was presented an opportunity to invest in a venture backed company at a reasonable valuation with a strong growth profile, and above average unit economics. I’m lucky to do something for work that I really love (investing) – but I digress. My professional life requires me to invest in the private markets.
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