Warren Buffett got a lot of publicity in the US on Thursday night (our time) with his company’s acquisition of America’s Van Tuyl Group, the fifth-largest auto dealership firm in the country and also the largest privately-owned dealer.
“This is just a very very good operation…I fully expect we’ll buy a lot more dealerships over time,” Buffett said in an interview on the CNBC TV business channel where he disclosed the deal moments before Berkshire put out a press release about the acquisition.
After becoming a part of Buffett’s massive conglomerate, the auto dealership will be known as Berkshire Hathaway Automotive and it will join newspapers as perhaps the most unfashionable of all investment areas for Mr Buffett.
No doubt Mr Buffett’s legions of fans will go out and start stalking listed car companies. In Australia the major listed dealers are AP Eagers and Automotive holdings. In the US two large groups are Car Nation and Carmax. Good luck finding value!
But in the same interview, Mr Buffett had a more important message for his acolytes among investors, the media and business – he can make a mistake, and when he does, it can be a biggie.
Mr Buffett owned up to his investment in the slumping giant UK retailer, Tesco.
Buffet’s company, Berkshire Hathaway owns 3.97% of Tesco, but at one stage it owned 5%.
It bought in at the top back in 2007, and kept buying for a couple of years, despite at least one major profit warning in 2012. Lately it has been a seller, and at times a small buyer.
“I made a mistake on Tesco,” he told CNBC. “That was a huge mistake by me.”
There was no elaboration, so we will have to wait to the shareholder letter in the annual report, to be issued late next February with the full year results and annual report.
We’ve highlighted Tesco’s ills a couple of times this year in the context of the weakening UK supermarket industry (which is being battered by hard discounters like Liddl and Aldi from Germany), poor management and last week, the shock news that it had overstated its already weak profit forecast by a quarter of a billion pounds.
Tesco’s share price fell to a new 11-year low overnight Thursday, down 1.1% in London to 178.20p.
The shares are down 49% so far this year because of two profit warnings, the sacking of the CEO, Philip Clark, and now the profit problem.
The Key UK markets regulator, the Financial Conduct Authority, announced on Wednesday that it was starting a full inquiry into the 250 million pound error, how it came about and any responsibility.
The probe will keep Tesco shares under pressure for months to come. The retailer has postponed its interim sales and profit report three weeks until October 23 asnd that will be a painful, loss-riddled announcement full of mea culpas and promises to do better.
Mr Buffett bought Tesco shares in 2007, spending $US2.35 billion building a 5.2% stake. That included topping up his stake from 3% to 5.2% after a profit warning in January 20912 (which knocked five billion pounds from the retailer’s market value).
But you can see the attraction of Tesco to Mr Buffett. It had a reputation of being a rather dull, but well run company with conservative accounting and a dominant position in the UK supermarket sector and was the third biggest retailer globally. It had built market beachheads in Asia, especially China and in the US (all gone or cut back).
The Berkshire annual report says the company owned 301 million Tesco shares worth $US1.666 billion, under the cost of $US1.699 billion.
On Thursday that stake was valued at $US880, a paper loss of 48% Ouch. That is a mistake.
It’s not the first big mistake Mr Buffett has made, or owned up to. There was the investment in the troubled airline USAir in the 1990s and bankrupt utility TXU a few years ago.
The former US investment bank, Salomon brothers was another (and probably one of his worst because it brought him into conflict with the US government over some of the activities Salomon executives were doing in the US Treasury bond market).
And early this year he owned up to an $US873 million mistake the purchase of $US2 billion of bonds issued by a struggling company called called Energy Futures Holdings. the bonds were sold at a huge loss. he also lost around $US1 billion buying a stake in ConocoPhilips as oil prices peaked in 2007 -08.
There have been more, smaller mistakes. As he said in his 1989 letter to shareholders: “My behavior has matched that admitted by Mae West: “I was Snow White, but I drifted.”
