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All Contents © 2017The Kiplinger Washington Editors
By Jonathan Berr
| May 16, 2017
Warren Buffett is considered by many to be one of the greatest if not the greatest investor in history. Consider that shares of Berkshire Hathaway Inc. (BRK.A, BRK.B) sold at their IPO in the 1960s for $19, which predated Buffett’s involvement. BRK.A recently changed hands for $245,000, an astounding return of more than 129,000%. That’s a track record that many of the hedge fund tycoons who swear admiration for the Oracle of Omaha couldn’t come close to matching if the flow of funds data is to be believed.
The octogenarian billionaire, though, isn’t perfect. Were you to meet him, I would imagine that Buffett would be the first to admit that he is mortal.
He has made many mistakes during his storied career. Sometimes, he has failed to understand macroeconomic trends and other times he has been stuck with a management team that failed to deliver the performance that he expected.
Warren Buffett also changes his mind.
Buffett has made a huge push into airlines in recent years after showing disdain for the sector for decades. Also, Buffett has gotten over his aversion to technology and now owns 133,000 shares of Apple Inc. (AAPL). He also has recently unloaded most of his stake in Wal-Mart Stores Inc (WMT), deciding correctly that traditional retailers are going to be hurt over the long run by Amazon.com, Inc. (AMZN).
In some cases, such as The Coca-Cola Co. (KO), Buffett seems to be oblivious to the growing consumer unease about the health issues associated with consuming carbonated beverages. The Cherry Coke-loving investor has been associated with KO for decades and now owns more than 9% of the Atlanta-based company.
When Buffett first bought Coca-Cola in 1988, it traded for $2.50 per share adjusted for stock splits. KO now trades for about $43.53. That’s obviously a win for Buffett’s value investing approach. KO, though, hasn’t been much of a plus lately since KO stock has underperformed the broader market for the last 5 years.
Here are five examples of investments that didn’t go Buffett’s way.
Prices and data are from the original InvestorPlace story published on May 12, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Marc N. Belanger via Wikipedia
No that isn’t a misprint. Long before it was known as Warren Buffett’s conglomerate, BRK.A was a New England textile company. Then a spry 30-something, Buffett butted heads with Seabury Stanton, who was then the company’s CEO.
Stanton tried to buy back Buffett’s shares at a price lower than what they had previously agreed. Incensed, Buffett took over Berkshire and subsequently fired Stanton.
Soon, though, he realized that Berkshire’s stock was cheap for a good reason, the U.S. textile business was dying. He eventually threw in the towel on Berkshire’s textile business in 1985.
In 2010, Warren Buffett described BRK.A as the “dumbest stock I ever bought.”
Kurt Haubrich via Flickr (Modified)
Although Warren Buffett has admitted that Berkshire’s purchase of Dexter Shoes was a mistake, he has been reticent about the acquisition of NetJets, which clearly hasn’t worked as well as he would have liked.
Buffett was so impressed with the fractional jet service after signing up as a customer in 1995 before acquiring it three years later for $725 million. Ever since then, NetJet’s has hit quite a bit of turbulence.
Founding CEO Richard Santulli was reportedly forced out in 2009. When Adam Johnson took over the helm of the Columbus, Ohio-based company, he was the fourth CEO since Santulli.
In 2015, Buffett claimed that he hadn’t yet gotten a return on his investment. Subsequently, the following years haven’t been kind to NetJets. Berkshire doesn’t report the business profit separately, including it in its amorphous “Services” business, which includes his newspaper holdings among other things.
What it does say isn’t a huge confidence-builder, attributing a 19% increase in 2016 earnings to a “decline in losses from aircraft impairments and dispositions, partly offset by increases in depreciation and restructuring charges and reduced aircraft sale margins.”
Dennis van Zuijlekom via Flickr
Warren Buffett has preached for years that investors need to buy stocks in industries that they understand, and for decades he insisted that he avoided the tech sector because he didn’t understand it, even though he admires Amazon CEO Jeff Bezos.
That’s what made his decision to make a huge bet on International Business Machines Corp. (IBM) such a head-scratcher. Big Blue, to put it kindly, has loads of issues and has been slow to respond to the growth of cloud computing and other trends.
To his credit, Buffett realizes the error of his ways. Earlier this month, he unloaded about one-third of his stake in IBM shares and appears poised to sell even more shares, telling CNBC: “I don’t value IBM the same way that I did six years ago when I started buying. I’ve revalued it somewhat downward.”
Neither do many other investors.
Martijn Koster via Flickr
Warren Buffett’s decision to more than quadruple his holdings in ConocoPhillips (COP) at the time when oil prices were near their peak shows that even a seasoned pro can make a rookie mistake. To his credit, Buffett fessed up to his blunder, arguing in his 2008 annual shareholder letter that the “terrible timing of my purchase has cost Berkshire several billion dollars.”
Interestingly, Warren Buffett also predicted that the odds were “good” that oil prices would sell far higher in the future than their current $40 to $50 level. Fast forward to today and oil prices recently changed hands on the NYMEX at $47.33. The U.S. Energy Information Administration is expecting prices to average $54 in 2017 and $57 in 2018, so it seems that the Oracle of Omaha’s prediction was off.
Buffett, though, hasn’t soured on the sector entirely and is now the largest shareholder in Phillips 66 (PSX).
Gordon Joly via Flickr
In 2006, Warren Buffett was looking to diversify his holdings outside the U.S. and settled on the U.K. supermarket chain Tesco (TSCDY), where he eventually became the company’s third-largest shareholder. Five years later, he declared TSCDY to be his top pick, explaining to CNBC that “if the price came down some … I’d buy some more.”
It was a decision that he later regretted.
Like its counterparts in the U.S., Tesco faced increased competition. An accounting scandal sent shares into a tailspin, forcing BRK.A to take a massive $678 million write-down in 2014. Buffett declared the investment to be a “huge mistake” and has since exited it.
Although TSCDY earnings are improving, its latest results lagged analysts’ expectations.
This article is from Jonathan Berr of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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