Warren Buffett stumbles

published 23 October 2014

Warren Buffett has had a bad few days at the office. Troubled supermarket Tesco has seen its share price fall by almost 50% in the past year, leaving Buffett's Berkshire Hathaway nursing a loss of about $700m. He now says he made a "huge mistake" betting on Tesco.

Then this week, IBM scrapped a long-term growth plan as it reported falling sales and a dip in profits. The shares sank by 7%, wiping another $1bn off Buffett's paper fortune.

To cap it all, another big Buffett investment hit the buffers. Coca-Cola, which he began buying in 1988, warned of a sales shortfall and said currency movements would crimp profits. There went another $990m.

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What the commentators said

Even if your investment strategy is generally sound, said Todd Campbell on MotleyFool.com, "you can still end up with a dud". Buffett tries to buy great firms with competitive advantages selling at reasonable prices for the long term.

But what seems to have gone wrong here is that these companies' advantages have been eroded, or even become disadvantages. As Lex put it in the Financial Times, "consumer behaviour is changing".

Just as McDonald's is struggling to make "burgers and fries hip again" as other fast foods gain popularity, Coke's flagship product is struggling with the drift away from sugary drinks. Tesco has too many out-of-town centres at a time when shoppers prefer the web or convenience stores.

IBM is also suffering from structural change, said Richard Waters in the Financial Times. Companies started to pay for access to centralised, online data services run by companies such as Amazon cloud computing rather than buy technology and data services from the likes of IBM to run in their own networks.

Buffett once pledged to avoid tech stocks because he didn't understand them, says Alistair Osborne in The Times. Clearly, "even he can be short on random access memory".

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.