Confession of Warren Buffett & a private fund manager

Warren Buffett does not mind admitting his mistakes – that’s how legendary of an investor he is. Call a spade, a spade, yes? Why do we want to be right all the time? We are human after all – and the richest man in the world can teach us this kind of humility.

It is no secret that IBM and Coke represent two of Berkshire Hathaway’s 3 biggest holdings, but their operational blunders have already cost Mr Buffett more than $2.5 billion in the 4th week of October 2014.

Nearly $1 billion on IBM after the company posted disappointing earnings, while Coca-Cola (KO) did the same thing , posting third-quarter revenue that fell short of expectations.

But the losses in IBM and Coke weren’t the ones Buffett considers as mistakes. His mistake here refers to his stake in British grocer Tesco early October 2014.

master makes more mistakes

Source: Warren Buffett’s bad week

In an TV appearance on CNBC, Mr Buffett said:

“I made a mistake on Tesco. That was a huge mistake by me.”

He had previously hailed Tesco’s dominance in the UK and its growth prospects outside its home market, particularly in developing economies in Asia.

buffett mistakes

However, Tesco has gradually unravelled in the last few years. It was forced to exit the US at a cost of £1.2bn as its new venture Fresh & Easy failed to make a profit, while sales in the UK began falling at a significant rate.

Last October, stock market filings revealed Berkshire had cut its holding in Tesco from 4.98pc to 3.98pc by offloading derivatives that represented 80m of the voting rights in the company.

Tesco is now facing one of the biggest challenges in its history after a whistleblower in the company’s accounting team alerted new boss Dave Lewis to a £250m shortfall in the retailer’s expected half-year profit.

The shortfall was caused by Tesco booking income from deals with suppliers earlier than it should at the same time as pushing back costs.
Four executives have been suspended, including the UK chief executive Chris Bush.

The company has hired Deloitte and its legal firm Freshfields to investigate the cause of the shortfall.
Tesco is to be investigated by the Financial Conduct Authority over the £250m profit shortfall in its accounts.

Source: Tesco is a huge mistake for me – Warren Buffett

On the local front…

Most investors have been ignoring all the negative news along the way and enjoying steady gains over the past two years, it is no surprise that the recent sharp correction in our local bourse has caught many people by surprise!

The fall, which was led by weaker European economy and the sudden drop in oil prices, should not be taken too seriously as the former is not as bad compared with the European sovereign crisis in 2011 and the latter is, in fact, good for the global economy especially for the emerging economies. On the positive side, they will help to suppress the global inflation and defer the impending hike in the US interest rate, which should be viewed positively.

It is not only the sell down, but the speed of the selldown was the one that caught investors off-guard. It is likely that any Year-to-Date capital gains would have been completely wiped out within the past two weeks.

Phillip Capital CIO, Mr Ang Kok Heng humbly admits:

The fear for any fund manager is the possible technical rebound after the disposal in a depressed market. During the past few weeks, our stress level is no lesser than the anxiety of our investors.

Nonetheless, our view on the market is reflected below.

PCM Market Selldown

“We have, in the past, seen severe economic slowdown which eventually turned up to be a non-event. We feel that the recent market correction is healthy for longer term market recovery and investors should take advantage of this weaker market to invest further.”

Source: Phillip Capital From the Desk of CIO

 And to wrap things up…

Preview of my interview featured in Focus Malaysia, and on its Facebook page yesterday!

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