Warren Buffett admits 'thumb-sucking' over Tesco cost him $444m

Warren Buffett

Billionaire investor Warren Buffett has admitted that “thumb-sucking” over selling his Tesco stake cost $444m (£287.6m), one of the biggest losses in his investment company’s history.

Buffett’s firm Berkshire Hathaway was still Tesco’s third-largest shareholder last autumn, even after Britain’s biggest grocer had issued four profit warnings and become embroiled in an accounting scandal. Buffett admitted in October he had made a “huge mistake” by investing in Tesco.

In his 50th annual letter to shareholders, the 84-year-old veteran investor, known as the Sage of Omaha and one of the world’s richest people, said: “An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.”

The investment is a blemish on the 84-year-old billionaire’s record. In his 50 years at the helm of Berkshire, he transformed a failing textile company into a sprawling business that has outperformed much of corporate America.

Since Buffett bought Berkshire in 1965, the firm’s per-share value has rocketed from $19 to $146,186.

He bought his first Tesco shares in 2006. In 2012, he raised his Tesco stake to over 5% despite a shock profit warning. He sold 114m of his 415m Tesco shares in 2013 when he “soured somewhat on the company’s then-management”. The grocer was then run by Philip Clarke.

He made a reference to Berkshire’s vice chairman Charlie Munger over his delay in selling off further Tesco shares. “My leisurely pace in making sales would prove expensive. Charlie calls this sort of behaviour ‘thumb-sucking’. Considering what my delay cost us, he is being kind.”

Buffett sold Tesco shares throughout 2014 when the supermarket group’s problems worsened “by the month”. “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.”

Berkshire’s after-tax loss from this investment was $444m, or one-fifth of 1% of Berkshire’s net worth. Since he pulled out, Buffett noted that Tesco had hired new management – Dave Lewis from Unilever – “and we wish them well”.

Its other investments fared better and Berkshire’s net value increased by $18.3bn last year. The firm increased its stakes in American Express, Coca-Cola, IBM and Wells Faro, its biggest four investments.

Looking back over the last half century, Buffett took a shot at investment bankers on Wall Street, writing: “The Street’s denizens are always ready to suspend disbelief when dubious manoeuvres are used to manufacture rising per-share earnings, particularly if these acrobatics produce mergers that generate huge fees for investment bankers.”

Addressing the question of his successor at Berkshire, he said he and his board of directors “believe we now have the right person to succeed me as CEO,” and who in some respects “will do a better job than I am doing.”

While Buffett did not name that person, Munger, 91, said Greg Abel and Ajit Jain, two top Buffett lieutenants, would be prime candidates. But a successor could also be female: Buffett said “gender should never decide who becomes CEO.”

Powered by Guardian.co.ukThis article was written by Julia Kollewe, for theguardian.com on Sunday 1st March 2015 12.41 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


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