Warren Buffett has made plenty of winning moves, but he's just as quick to call out his missteps. One of his biggest? Wasting years chasing dirt-cheap stocks that weren't actually worth owning.

For a long time, Buffett followed the "cigar butt" strategy—buying stocks that were cheap simply because they were cheap. As he explained in a 2001 speech at the University of Georgia:

"You walk down the street and you're looking around for cigar butts, and you find on the street this terrible-looking, soggy, ugly-looking cigar—one puff left in it. But you pick it up and you get your one puff. Disgusting, you throw it away, but it's free. I mean it's cheap. And then you look around for another soggy one-puff cigarette."

That was his investing mindset for years. And sure, you can make some money doing it. But as Buffett put it, "It's so much easier just to buy wonderful businesses."

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The Problem With Cheap Stocks

He explained: "You got the plants for nothing, you got the machinery for nothing, you got the inventory and receivables at a discount. It was cheap, so I bought it."

Sounds like a steal, right? Except 20 years later, he was still stuck running a bad business that wasn't compounding his money.

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Buffett continued, "Time is the friend of the wonderful business. You keep compounding, it keeps doing more business, and you keep making more money. Time is the enemy of the lousy business."

That's the real issue with bad businesses. Even if you get them at a bargain, they don't grow into anything valuable.

Why ‘Fair Price' Beats ‘Great Deal'

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.

That's why he now says: "I'd rather buy a wonderful business at a fair price than a fair business at a wonderful price."

And that shift in thinking is what made him one of the richest investors in history.

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The Investing Lesson

For anyone looking to build wealth, Buffett's mistake is a valuable reminder:

• 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. A fair price for a great company is often a better investment than a "deal" on a mediocre one.

Buffett figured this out the hard way. But at least now, he's willing to share the lesson—so the rest of us don't have to make the same "disgusting" mistake.

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