We like to believe that our best decisions, especially financial ones, are guided by logic. In the world of business and investing, we read balance sheets, run numbers, compare comps, and analyze returns. Yet sometimes, even the best in the industry make decisions not with their heads, but with their hearts. And most of the time, that’s how it should be. But even the most disciplined investors fall into the trap of ‘emotion’. Just ask Warren Buffett.
In 1964, Buffett was a rising investor known for finding undervalued companies. One such company was Berkshire Hathaway – a struggling textile manufacturer with outdated machinery and a grim outlook. At the time, Buffett owned about 7% of the company and negotiated to sell his shares back to the company for a reasonable profit at $11.50 apiece – a deal he verbally agreed to with the CEO. But when the paperwork came through, the offer was twelve and a half cents lower per share.
It was a small slight, but a vital one. Buffett felt disrespected. He felt the CEO had gone back on his word. Rather than let it go, he responded by not only not selling but also buying more shares. It wasn’t necessarily about the money – it was about principle. Within a year, he owned a controlling interest in the company, and his first move after controlling the board was to fire the CEO.
Years later, Buffett would call this one of the dumbest investments he’s ever made. Not because of how it turned out, but because of why he did it in the first place…. He let emotion drive the decision. The textile business was failing, competition was growing, margins were shrinking, and it had no real future. Out of loyalty to the workers and a sense of responsibility, he kept it running for another 20 years before finally shutting it down.
The only reason the story has a happy ending is that Buffett used the shell of Berkshire Hathaway to invest in better businesses – starting with insurance companies, banks, and then giant brands like Dairy Queen, Coca-Cola, and Apple. The returns on those investments, compounded over decades, turned a reactionary decision into one of the greatest financial stories of all time. That’s how Berkshire became what it is today.
However, the key lesson remains: making decisions out of emotion rarely leads to the best outcomes. Buffett succeeded despite his passionate reaction, not because of it. Even Buffett knew he got lucky. Most people don’t get that kind of margin for error. Most of us don’t get to accidentally build a $900 billion empire because we got offended. For the rest of us, emotional decisions tend to be expensive – and not in a good way.
In my line of work, I see emotional decision-making all the time. Buying real estate, investing in an asset, or making a financial move tied to a dream or family vision aren’t always black and white. That’s why I always remind clients that just because something feels right, it doesn’t mean it makes sense financially. The key is recognizing when emotion is influencing the decision and making sure it doesn’t override reason.
Over the years, I’ve seen clients fall in love with a deal that doesn’t quite add up financially. It happens … and it’s usually driven by emotion. That’s why I always push to separate feelings from strategy. Easier said than done, especially with big decisions and when money is involved. I always make sure that my clients look at the numbers, review the risks, and have honest conversations. When emotion is acknowledged and not mindlessly followed, it’s not being reckless – it’s being intentional. My hope for these clients (and you know who you are) is that your returns far exceed even those of Warren Buffett’s.
Would you rather be right on paper – or right in hindsight? I’d love to hear your answer! Please let me know if you have a good “Would you rather” question, and we will highlight your submission.
Shmuel Shayowitz (NMLS#19871) is a highly regarded Real Estate & Finance Executive, Writer, Speaker, Coach, and Advisor. He is President and Chief Lending Officer of Approved Funding, a privately held national mortgage banker and direct lender that has facilitated over $3 billion in mortgage funding. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including certified mortgage underwriter, licensed real estate agent, residential review appraiser, and accredited investor, to name a few. Shmuel has successfully navigated through many changing markets and business landscapes, making his market insights and experience well-coveted within the real estate industry. He can be reached via email at [email protected].
