Warren Buffett thinks investing in Tesco is like living with an infestation of cockroaches
In his annual letter for his Berkshire Hathaway shareholders, released Saturday, Buffett revealed that he lost £288 million ($444 million) in the embattled British supermarket and he is "embarrassed" by taking too much time in exiting the beleaguered stock.
Above all, his letter showed that he really hates Tesco and its management. Here is his comment in full, from page 17. on in the letter (emphasis ours):
"Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock investments, is now absent. An attentive investor, I'm embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.
"At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the UK and an important grocer in other countries as well. Our cost for this investment was $2.3 billion, and the market value was a similar amount.
"In 2013, I soured somewhat on the company's then-management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior "thumb-sucking." (Considering what my delay cost us, he is being kind.)
"During 2014, Tesco's problems worsened by the month. The company's market share fell, its margins contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.
"We sold Tesco shares throughout the year and are now out of the position. (The company, we should mention, has hired new management, and we wish them well.) Our after-tax loss from this investment was $444 million, about 1/5 of 1% of Berkshire's net worth. In the past 50 years, we have only once realized an investment loss that at the time of sale cost us 2% of our net worth. Twice, we experienced 1% losses.
"All three of these losses occurred in the 1974-1975 period, when we sold stocks that were very cheap in order to buy others we believed to be even cheaper."
In January this year, Moody's and Standard & Poor's downgraded Tesco's credit rating to junk. Tesco is under investigation from the Serious Fraud Office (SFO) into how the group overstated profits by £250 million in September 2014.
The scandal knocked billions off pounds off Tesco's market value and the stock is at a 12 year low.
Tesco CEO Philip Clarke has now left the group and was replaced by Dave Lewis.