Warren Buffett is in the news for recognising a “huge mistake” in his disastrous Tesco investment, on which he is nursing a loss of $800 million (€639 million).
The episode calls to mind another costly Buffett misadventure, namely his dalliance with Ireland’s bedraggled banks when the crisis was really taking hold.
The “Sage of Omaha” acknowledged in 2009 that he had put rather a large dollop of cash into Dublin-listed banks the previous year and lost most of it. This was bad timing indeed because 2008 was the year of the guarantee, yet Buffett never named the lenders in question.
“I spent $244 million for shares of two Irish banks that appeared cheap to me,” Buffett wrote in the 2008 Berkshire Hathaway shareholder letter.
“At year-end we wrote these holdings down to market: $27 million, for an 89 per cent loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes ‘unforced errors.’”
We know the feeling all too well, though it might be added that Berkshire lost “several billion dollars” that same year in ConocoPhillips stock. Oil and gas were near their peak when Buffett bought in. Then oil and gas collapsed. Ouch.
Buffett’s made his foray into Tesco in 2007, when the supermarket chain was on the march. Unsurpassed in Britain in those days and at the outset of an ambitious US expansion, Tesco’s empire seemed unassailable. Then the global crisis struck, opening a huge opportunity in the comany’s back yard for German hard-discounters.
The American expedition never worked, prompting a humiliating retreat and massive loss.
Tesco has issued four profit warnings within months, it has ejected one chief executive and newly-arrived boss Dave Lewis is trying to overcome the accounting scandal he inherited within days of his (early) arrival at the company. Upshot? The stock has lost practically half its value this year.
It’s no wonder Buffett is kicking himself.
When others sold down Tesco shares, he loaded up a little after the first profit warning. We know what the tennis crowd would think of that.
“I made a mistake on that one. That was a huge mistake by me,” he said this week.
Buffett can get away with these things because he generally calls it right. But no-one’s perfect, eh. Any Irish banker will tell you that.
