How Tesco Cost Buffett A Small Fortune?

  • Warren Buffett started accumulating Tesco shares in 2007 and held over 5% of the UK retailer at the end of 2012.
  • The stock is down by 45% in year to date, following reports of profit overstatement to the tune of $400 million emerged.
  • Buffett’s Tesco stake has lost over $750 million, with the Oracle of Omaha terming the investment a ‘Big’ mistake.
Warren buffett Tesco mistake

Warren Buffett rarely makes mistakes and is famously known for his abilities as a stock picker. Buffett's value investing principles have mostly paid off and Berkshire Hathaway has grown book value at an average annual rate of 19.7% over the last 38 years, a measure of Buffett’s stock picking abilities. However, when he does make mistakes, Buffett is humble and honest to accept it. The Oracle of Omaha has openly accepted his Tesco investment as one of his biggest mistakes, having lost $750 million on this one single investment. We today look at Tesco and also his other major exits from Berkshire Hathaway’s (BRK.A) portfolio in 2014.

Also See: Warren Buffet's 2014 investments.

Buffett Owns Up Tesco Mistake

Tesco stock has lost 45% in 2014, following reports of overstatement of half yearly profit to the tune of 250 million GBP ($400 million). Quoting Warren Buffett from an interview on CNBC,

“With Tesco, we definitely made a mistake. I made a mistake on that one more than anybody else made a mistake ... That was a huge mistake by me.”

The Tesco mistake was definitely a costly one, costing Berkshire and Warren Buffett over $750 million. Following the reports of profit overstatement, the master investor has been off loading shares in the recent months, which has brought down the holding in the retailer to less than 3% for a market value of 410 million pounds or $650 million.

The loss in Tesco, though seemingly huge, has failed to impact the performance of Berkshire in 2014. Berkshire’s stock last traded at $227,886 (Dec 19 close), up 28.1% in the year to date and 29.8% in the last 52 weeks. The stock has handily outperformed the S&P 500, up 10.1% in the year to date and 12.8% in the last one year. The Warren Buffett juggernaut continues to roll on, having over stepped the minor bump of Tesco.

Warren Buffett’s Sell List For 2014

Warren Buffett also made major exits in 2014, making complete exits from Deere & co and Starz, while making large exits from 5 other holdings.

Berkshire sells stake in Deere & Co

Berkshire first acquired a stake in Deere & co (DE) in Q3 2012. Deere & Co is a tractor and farm equipment manufacturer. Berkshire held 3.98 million shares from Q3 2012 to Q3 2014. The stock is down (0.6%) over Berkshire’s 24 months holding period. However, Berkshire Hathaway pocketed over $14 million from dividends over the last 2 years with Deere & co current dividend yield of 2.46%. The stake accounted for 0.35% of Berkshire’s US public holdings at the end of 2013. (See: Deere & Company stock chart)

Warren Buffett exits Starz

Another complete exit in Q3 was from Starz (STRZA), the media and entertainment company, which was acquired as a result of the company’s spin-off from Liberty Media corp in Q1 2013. Berkshire’s stake in Liberty media corp led to a 4.67% stake in the spun off Starz. Berkshire Hathaway owned 4.5 million shares in Starz at the end of 2013, valued at $132 million and making up 0.13% of Buffett’s US public holdings portfolio. The stake has gained over 45% from Q1 2013 to Q3 2014, implying a significant upside to Berkshire from its Starz exit. (See: Starz stock chart)

The other exits through the first three quarters of 2014 are summarized below.

Name of issuer Number of shares in 2013 Value in 2013 ($, in 1000's) YTD performance Stake offloaded
Deere & Co (DE) 3.98 M 363.38 -1.35% 100.0%
Starz (STRZA) 4.54 M 132.8 -0.14% 100.0%
ConocoPhillips (COP) 11.08 M 782.8 0.47% 95.7%
Graham Holdings Company (GHC) 1.73 M 1146.1 32.75% 93.8%
Phillips 66 (PSX) 27.16 M 2095.15 -6.90% 77.2%
National Oilwell Varco Inc. (NOV) 8.88 M 706.23 -15.7% 28.1%
Liberty Media Corp Delaware(Class A) LMCA 5.30 M 775.35 -9.9% 24.5%

Among the other major exits, Graham Holdings Company and Phillips 66 accounted for a significantly larger share of the total portfolio at the end of 2013. The stake in Graham Holdings, comprising of 1.73 million shares, accounted for 1.1% of Berkshire’s total holdings with a value of $1.146 billion at the end of 2013. On the other hand the stake in Phillips 66, including 27.16 million shares, valued at 2.1 billion, accounted for 2% of Berkshire’s portfolio at the of 2013.

In conclusion, while Tesco cost Berkshire Hathaway a small fortune, the stock is up 28.1% stake in the year to date. The Tesco mistake, though seemingly large, was a minor one in relation to the size of Berkshire’s total equity holdings. A loss which could have wiped out an entire fund, has been overcome as Berkshire’s stock continues to move higher driven by gains in its leading positions.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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