WARREN BUFFETT`S HUGE INVESTING MISTAKES
Every trader has his own investing mishaps, even business magnate Warren Buffett. He is known for having undisputed investment record. But let’s take a look at his seven biggest investing mistakes.
In 2006, the Oracle of Omaha, through his Berkshire Hathaway, purchased more than 300 million shares of Tesco for $1.699 billion, making it the entity’s third biggest investor. Eight years after, Tesco stock began to decline following the UK supermarket retailer admitted it overstated its 1st quarter earnings projection by $400 million. Buffett always follows the buy and hold mentality when it comes to investing, which made him prosperous for the last four decades. However, with his Tesco investment, he ended up erasing more than $700 million toward the end of 2014.
Dexter Shoe Company
The philanthropist purchased the Dexter Shoe Company with 1.6% of Berkshire Hathaway’s stock, amounting to $433 million. It was generating $40 million annually pre-tax. But because of competitive pressure, Dexter sustained descending sales that resulted to ending shoe production in the United States and Puerto Rico in 2001. In a 2008 letter to shareholders, Buffett said the stock he used to buy the firm is now worth $5 billion and no longer in business.
It takes huge investment capital to venture in the highly competitive industry where profit margins are slim. Even though Buffett knows this is a death trap for them, he still tried. He purchased US Airways’ $350 million of preferred stock to shield it against hedge fund manager Michael Steinhardt’s hostile takeover. Sure, his investment was protected from the risky bid, but Southwest Airlines entered the arena with 8-cent seat costs. US Airways could not topple that, so Buffett cashed out his shares and broke the deal.
Buffett, his 5th biggest holding, acquired $100 million Wal-Mart stocks at a (pre-split price of) $23 in 2003. However, the entrepreneur said they bought a little and it moved up slightly, hoping it will go back. Unfortunately, that cost them around $10 billion.
Energy Future Holdings
The seasoned investor invested a substantial amount of money in bonds. He acquired $2 billion of Energy Future Holding’s debt as part of a leveraged buyout of Texas electric utility assets without consulting his business partner Charlie Munger. But in 2014, the veteran trader sold the bonds for $259 million, which led to a pre-tax loss of $873 million.
Salomon Brothers Inc.
A series of scandals in early 1990s almost pressed Salomon Brothers into bankruptcy, which urged Buffett to set up an emergency takeover of the firm where he had a $700 million stake. Unfortunately, it turned the other way around. The well-known businessman got $1.7 billion when Travelers acquired the financial services company for $9 billion in 1997.
Believe it or not, this is one of Buffett’s largest investment mistakes. In 1962, he began buying stocks in the entity when it was unable to compete with cheap foreign suppliers. Buffett knew it would fail, but he still chose to own stock in the company because he thought Berkshire’s assets made it a good investment. but Seabury Stanton, who operated the entity, offered to purchase it for $11.50 a share, but was only sold at $11.375 a share. Some sources disclosed Buffett became angry, acquired more Berkshire shares, and ousted Stanton. But later, Buffett admitted he overpaid for his holding company, saying its value would double.
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