Warren Buffett. The name is synonymous with being one of the most successful value investor. Compounding at 20% for 50 years is a tall task. In fact, it is unimaginable for modern day fund managers to mimic such a performance. However, an investing legend by the name of Warren Buffett has achieved this feat with ease. With an eye for quality businesses and for whom money-making is the order of the day; this man has formed the habit of being successful. However this does not mean that Mr Buffet has never gone wrong.
"Warren Buffett loses $750 million in Tesco" This news has become headline in the most of the sources of financial media these days...
So how did Mr Buffett, the one who cautiously picks up a company when it comes to investment, slip up ?
Mr Buffett's Berkshire Hathaway investment group has been holding Tesco shares since 2007. In January 2012, Tesco - the supermarket chain had issued profit warning. At this point of time, Mr Buffet was buying in the shares while the others were ditching the stock. By the end of 2013, Buffet held approx 4% of shares of Tesco.
The stock has been witnessing sharp correction since some time and has tumbled to its lower levels. The profits of the company were witnessing sharp fall and were much below the company's expectation. Hence, Tesco suspended four executives and called in auditors from Deloitte to conduct an investigation on this issue.
The profits were found to be inflated following the chain's apparent accounting issues. Poor internal accounting issues had led to downgrade of 23% of its profits forecast.
There are still many things which will get clear on its accounting front and till the real picture comes out. However one should learn lessons from such investment cases.
Avoid greed. Especially in such cases where signs are much visible. One should not ignore the warning signs and look beyond the reported numbers. Invest in businesses that have strong fundamentals and are run by able and honest managements. Also, always beware of the irrationality that may lead you to take decisions that would harm you in the long run. Over and above one should revisit one's investments and exit if the things seem to be wrong in the fundamentals of a company. And last but not the least, do not put large chunk of money in single script or stock. Diversification is must.