OFF THE WALL: Warren Buffett admits to ‘blunders’ in letter to stockholders

By Daniel de la Rosa

On the 50th anniversary of Warren Buffett’s takeover of Berkshire Hathaway, I received a copy of his letter to stockholders. The chairman’s letter is a milestone of sorts – pretty much like opening a gift from Santa on Christmas morning.

The wisdom is homespun. Simple. Direct.

While everyone hails him as a genius of an investor and stock picker, his remarks on the times he fails are probably the best thing about this message.

“Fortunately, my blunders normally involved relatively small acquisitions. Our large buys have generally worked out well and, in a few cases, more than well. I have not, nonetheless, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned.”

He particularly touched on his investments in Tesco, a British grocery and general merchandise company that is often ranked as the third biggest in the world.

“Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock investments, is now absent. An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier.”

“I made a big mistake with this investment by dawdling. At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the
U.K. and an important grocer in other countries as well.”

“Our cost for this investment was $2.3 billion, and the market value was a similar amount. In 2013, I soured somewhat on the company’s then-management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive.”

His partner, Berkshire vice-chairman Charles Munger “calls this sort of behavior ‘thumb-sucking.’

“During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: “You see a cockroach in your kitchen; as the days go by, you meet his relatives.”

Buffett said they eventually sold all their shares of Tesco. But the delay in dumping all the shares was an expensive hit against Berkshire.

Buffett said: “Our after-tax loss from this investment was $444 million, about 1/5 of 1 percent of Berkshire’s net worth. In the past 50 years, we have only once realized an investment loss that at the time of sale cost us 2 percent of our net worth. Twice, we experienced 1 percent losses. All three of these losses occurred in the 1974-1975 period, when we sold stocks that were very cheap in order to buy others we believed to be even cheaper.”

The wonderful thing about Buffett is that he exudes the vibe of your amiable grandfather whose candor, wisdom and smarts are very much off the charts.

Bill Gates called the letter Buffett’s best ever. The Microsoft billionaire is right.

He took a swipe at those emigrating from America, and bringing their money in tax haven countries.

“Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket).”

For him, stocks have always been a good bet to become comfortable and he urged investors to have confidence in keeping their money in good American companies.

“The unconventional, but inescapable, conclusion to be drawn from the past 50 years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities – treasuries, for example – whose values have been tied to American currency.”

“Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”

‘Off the Wall’ is a regular column on the stock market. The comments expressed here are the author’s own, and are not meant to recommend the buying or selling of stocks.

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