Warren Buffett & Tesco Fiasco

Warren Buffett is known as the Oracle of Omaha for his stock picking prowess.

As the CEO of Berkshire Hathaway, he made the company and easy $2 billion by backing up Goldman Sachs when it was in trouble. Buffett also dropped $100 million by backing Tesco.

After analyzing Berkshire Hathaway’s Tesco investments, we learned that the company added to its 260 million share Tesco position last autumn and bought another $75 million worth more of the stock. After the purchase was made, the share prices dropped and continued to fall.

To cut its losses, Berkshire sold roughly $20 million worth of shares, according to Bloomberg trading data, but then bought more shares just as the share price started to drop again.

All in all, at this time, Berkshire Hathaway is losing about $112 million on this deal.

This isn’t even counting the 260 million shares that the company owned prior to making these purchases. All in all, the shares have dropped roughly 500,000,000 pounds in value.

Buffeted purchased a lot of the shares after a profit warning was made back in January 2012. Once this took place, Neil Woodford, fund manager at Invesco, sold off his entire stake.

Running his own fund now, Mr. Woodford might not be the only one laughing. Short sellers are also making a phenomenal return on Tesco as well at the moment.

By analyzing the share register, The Independent discovered that two major hedge funds – Lone Pine Capital and Lansdowne Partners – have really large bets against the share price of the company.

It is very difficult to tell how much profit these hedge funds will make as the price continues to fall, but realize that the size that they have chose to bet against the company is quite large. Lone Pine, based out of Connecticut, has a 56 million share short position in Tesco, and Lansdowne has shorted 50.4 million shares in this company.

Lansdowne, based out of London and run by Pete Davies and Stuart Roden, is quite famous for spotting weak stocks early right before their share prices are about to fall. Last year, the funds had a record year, in particular because of its negative stance on supermarkets, betting heavily against Tesco and Wm Morrison.

The hedge fund is also famous for correctly reading financial stocks, making over 100,000,000 pounds during the financial crisis after making the decision that Northern Rock was not stable. The fund also invested in Royal Mail early.

Most investors are wondering if Tesco shares look cheap at the moment. Analysts – at least the majority of them – which tell you that the shares should still be avoided.

Warren Buffett, on the other hand, has made a tremendous amount of money making long-term, brave decisions. Remember his most famous quote…

“Be fearful when others are greedy and greedy when others are fearful.”

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