Warren Buffett says he would rather 'prep for a colonoscopy' than make this mistake again

Charles Munger, vice chairman of Berkshire Hathaway Inc., left, and Warren Buffett, chairman of Berkshire Hathaway Inc.
Nelson Ching | Bloomberg | Getty Images

The 'Oracle of Omaha' isn't perfect.

Warren Buffett, the legendary investor who's doubled the return of the S&P 500 Index over the last 51 years, devoted a portion of his annual shareholder letter to pointing out some of his biggest mistakes—and what he's learned from them.

Buffett described once issuing 272,200 shares of Berkshire Hathaway stock to buy General Reinsurance in 1998. The move increased Berkshires shares outstanding by more than 20 percent for a reinsurer that stumbled initially after the purchase.

"My error caused Berkshire shareholders to give far more than they received (a practice that – despite the Biblical endorsement – is far from blessed when you are buying businesses)," the Berkshire chairman wrote in the letter released Saturday morning.

Buffett then described how he "atoned" for that mistake by buying a majority stake in utility MidAmerican Energy for all cash in 2000.

"The MidAmerican cash purchase – I was learning – firmly launched us on our present course of (1) continuing to build our insurance operation; (2) energetically acquiring large and diversified non-insurance businesses and (3) largely making our deals from internally-generated cash," Buffett wrote.

"Today, I would rather prep for a colonoscopy than issue Berkshire shares," he added.

Also in the letter, Buffett, 86, copped to buying a company that lost all of its value, not something investors would expect from the money making legend.

"I made one particularly egregious error, acquiring Dexter Shoe for $434 million in 1993. Dexter's value promptly went to zero. The story gets worse: I used stock for the purchase, giving the sellers 25,203 shares of Berkshire that at yearend 2016 were worth more than $6 billion," states the letter.

Berkshire's market value increased 23 percent last year, bringing its annual percentage change to 20.8 percent since 1965. Over the same period, the S&P 500 has returned with dividends included 9.7 percent.

In the section of the letter devoted to manufacturing, service and retailing operations— or as Buffett described them "lollipops to jet airplanes"— the Oracle described what led him to make some errors in that sector, but doesn't identify the specific businesses:

"A few, however – these are serious blunders I made in my job of capital allocation – produce very poor returns. In most cases, I was wrong when I originally sized up the economic characteristics of these companies or the industries in which they operate, and we are now paying the price for my misjudgments. In a couple of instances, I stumbled in assessing either the fidelity or ability of incumbent managers or ones I later put in place."

Buffett, however, noted that his partner and vice chairman of Berkshire, Charlie Munger, 93, is there to keep him on the straight and narrow.

"I will commit more errors; you can count on that. Fortunately, Charlie – never bashful – is around to say 'no' to my worst ideas," wrote Buffett.