Legendary stock-picker Warren Buffett has admitted that he made some rotten calls in 2008, particularly in the energy sector. In his eagerly-awaited annual letter to shareholders of his company Berkshire Hathaway, Buffett said he ‘did some dumb things in investments’ last year – resulting in the fund losing $11.5bn, the worst showing in its history. Buffett has spent most of his career getting it right when everyone else got it wrong, which is why he’s one of the world’s richest men. In some ways it’s reassuring that even he make mistakes sometimes – but on the other hand, if he can’t predict the market, what hope is there for the rest of us?
The so-called ‘Sage of Omaha’ certainly made some decidedly dodgy calls last year. Top of the list was an investment in oil company Conoco Philips back in the summer, when oil prices were at their peak. Since then the shares have halved in value, costing Berkshire about $3bn; Buffett admitted frankly that he ‘in no way anticipated the dramatic fall in energy prices’. He still expects the oil price to go up again eventually, but confessed that so far he had been ‘dead wrong’ – and either way, ‘the terrible timing of my purchase has cost Berkshire several billion dollars.’ Even if you’re a zillionaire, that’s going to sting a bit.
That wasn’t all. Buffett also spent $244m on buying stakes in two Irish banks – which have subsequently lost 89% of their value (and counting). There was also a big investment in Tesco, which is currently showing a $133m loss. ‘The tennis crowd would call my mistakes 'unforced errors'’, he told investors. All in all, this wiped $11.5bn off the fund’s value, and pushed profits down by about 60% to $5bn. And given that he thinks the economy ‘will be in shambles throughout 2009’, with the massive state bailouts resulting in an ‘onslaught of inflation’, this year might not be much better.
Of course, Buffett wasn’t exactly the only stock-picker to suffer last year. ‘Investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game,’ as he colourfully (and slightly unpleasantly) put it. And some of his investments are bearing fruit, notably in his specialist area of insurance. In this sector, he said, ‘juicy targets were everywhere’. So we’re sure he’ll bounce back.
What’s more, we can’t help admiring his candour. How many other financial types have been this open about their mistakes over the last 12 months? Although admittedly it helps to have built up over 40 years of credit with shareholders, many of whom have becomes millionaires as a result of his more successful bets...
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I was dumb, says Warren Buffett
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