Warren Buffett's 'Disgusting' Investing Mistake: The 'Soggy, One-Puff' Stocks

As one of the most successful investors of all time, Warren Buffett has made his fair share of winning moves. However, even the Oracle of Omaha has made his fair share of mistakes. In a 2001 speech at the University of Georgia, Buffett admitted to a "disgusting" investing mistake he made for years: chasing "soggy, one-puff" stocks.

Buffett explained that for a long time, he followed the "cigar butt" strategy—buying stocks that were cheap simply because they were cheap. He would walk down the street and look for cigar butts, picking up the ones with one puff left in them. He believed that even though these stocks were disgusting, they were free, and he could get one puff out of them before throwing them away.

However, Buffett later realized that this approach was foolish, except for liquidators. He explained that these cheap stocks often had underlying problems that made them poor long-term investments. Even if he bought them at a discount, they might not grow or compound his money over time.

Buffett's biggest mistake with this approach was buying Berkshire Hathaway itself. In the early days, it was nothing more than a struggling textile business that happened to be trading below its working capital per share. He explained that he bought it because it was cheap, but 20 years later, he was still stuck running a bad business that wasn't compounding his money.

Buffett eventually abandoned his bargain-hunting obsession and started focusing on quality. Instead of buying stocks just because they were cheap, he looked for companies with strong fundamentals—businesses that could grow and multiply his investment over time. He now says, "I'd rather buy a wonderful business at a fair price than a fair business at a wonderful price."

The lesson for investors is clear: a cheap stock isn't always a good deal. If the business isn't growing, you're just buying something that will stay stagnant—or worse, decline. Time works for great businesses, not bad ones. Buy stocks that will compound, not ones you'll regret holding. Focus on value, not just price.



Buffett's shift in thinking is what made him one of the richest investors in history. By focusing on quality and understanding the importance of a durable competitive advantage, he has been able to identify and invest in great businesses at fair prices. This approach has allowed him to build a portfolio of wonderful companies that have compounded his money over time.

Investors can learn from Buffett's mistake and apply these insights to their own portfolios. By focusing on quality and understanding the underlying economics of a business, investors can avoid the pitfalls of chasing cheap stocks and instead build a portfolio of great businesses that will compound their money over time.

In conclusion, Warren Buffett's "disgusting" investing mistake of chasing "soggy, one-puff" stocks is a valuable lesson for investors. By understanding the flaws in this approach and shifting their focus to quality and value, investors can build a portfolio of great businesses that will compound their money over time. As Buffett says, "It's so much easier just to buy wonderful businesses."