In his 1991 Berkshire Hathaway Annual Letter, Warren Buffett discusses the two critical mistakes he made when Berkshire Hathaway had the chance to acquire a significant stake in Fannie Mae in 1988.

• Stopping buying after an initial price increase: This prevented him from fully seizing the potential growth.
• Selling their existing shares due to a dislike for small positions: This was a knee-jerk reaction based on personal preference, not sound investment logic.

Buffett estimates that these mistakes cost Berkshire Hathaway approximately $1.4 billion by 1991. Here’s an excerpt from the letter:

Every writer knows it helps to use striking examples, but I wish the one I now present wasn’t quite so dramatic: In early 1988, we decided to buy 30 million shares (adjusted for a subsequent split) of Federal National Mortgage Association (Fannie Mae), which would have been a $350-$400 million investment.

We had owned the stock some years earlier and understood the company’s business. Furthermore, it was clear to us that David Maxwell, Fannie Mae’s CEO, had dealt superbly with some problems that he had inherited and had established the company as a financial powerhouse—with the best yet to come. I visited David in Washington and confirmed that he would not be uncomfortable if we were to take a large position.

After we bought about 7 million shares, the price began to climb. In frustration, I stopped buying (a mistake that, thankfully, I did not repeat when Coca-Cola stock rose similarly during our purchase program). In an even sillier move, I surrendered to my distaste for holding small positions and sold the 7 million shares we owned.

I wish I could give you a halfway rational explanation for my amateurish behavior vis-a-vis Fannie Mae. But there isn’t one. What I can give you is an estimate as of yearend 1991 of the approximate gain that Berkshire didn’t make because of your Chairman’s mistake: about $1.4 billion.

You can read the entire letter here:

Berkshire Hathaway 1991 Annual Letter