As an investor who has made billions of pounds in the stock market over decades, Warren Buffett may seem to have the Midas touch.

Investors often want to learn from some of his legendary investments. These include shares in Apple and investments from several decades ago, such as shares in Coca-Cola which has turned into a passive income stream thanks to the company’s long-term period of annual dividend increases.

Such investments certainly offer useful and fascinating lessons. But Buffett is a clever enough investor to know that learning from mistakes is at least as essential in the stock market as learning from successes.

Not an answer most people would guess!

So when asked what his biggest mistake was, Buffett didn’t even hesitate to answer: Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B)!

But wait, what the hell is he talking about? After all, Berkshire was a miniature, failing textile company when he took control of it. It is now an insurance powerhouse with a powerful position in other industries and a market capitalization of over $1 trillion. It also sits on a cash pile worth hundreds of billions of dollars.

Why the hell would Buffett think this was a mistake?

Think about the omission, not just the commission

Buffett’s error in judgment – a correct one in my opinion – is that locking up capital in Berkshire’s original business had enormous opportunity costs. Buffett spent years trying to improve his doomed textile business. What if that time and capital were instead used in a more satisfying way?

Berkshire Hathaway probably could have grown faster and now be a much larger company than it is today.

As he explains during a discussion on why a cheap-looking but struggling business is rarely the bargain it seems, he said, “The original “bargain” price probably won’t turn out to be such a steal after all. In a tough business, as soon as one problem is solved, another one appears – there is never just one cockroach in the kitchen. Second, any initial advantage you gain will be quickly wiped out by the low returns the company earns“

So it was what Buffett calls a commission error – something he did (which he later regretted). But it also warns against errors of omission. These are opportunities that he had the knowledge to evaluate and find attractive, but he did not take advantage of them.

Buying Berkshire involved a lot of capital in a bad business that might otherwise have been invested in a good one on Buffett’s radar.

This is powerful and useful knowledge!

It was a costly lesson, but Buffett learned it and took it to heart. It can be tempting to look at companies that are struggling but look low-cost and treat them as possible opportunities.

Some of them do, but many of them turn out not to. There is a name for this type of investment: a value trap.

Therefore, Buffett changed his strategy and started hunting for brilliant businesses at attractive prices. This is not necessarily the same as a low price.

This is a lesson that any investor can apply.

Is it worth investing £5,000 in Berkshire Hathaway now?

If investing expert Mark Rogers and his team have stock advice, it can pay to listen. After all, Twelfth Magpie’s flagship Share Advisor newsletter, which it has run for almost a decade, provides thousands of paying members with the best share recommendations from across the UK and US markets.

Mark believes there are 6 standout stocks that investors should consider buying right now. Want to see if Berkshire Hathaway made the list?

Christopher Ruane does not hold any position in the companies mentioned.