Even one of the shrewdest investors of our time can occasionally make mistakes. Since 1964 Warren Buffett has consistently posted results that equate to an average annual return of 20%. For the period of his leadership of Berkshire Hathaway, this equates to a 2,800,000% return on investment.
It is no wonder then, that he is often referred to as the “Oracle of Omaha.” His investment ethos of focusing his research on just a few sectors and holding investments over long periods has been a recipe for success that others haven’t mastered.
But nobody is perfect, and Buffett has occasionally shown that he is human after all. In this article, I discuss three of Warren Buffett’s greatest investment blunders.
Selling his airline holdings
In 2020 Berkshire Hathaway had major stakes in four of the USA’s largest airlines. The details of these holdings are:
• American Airlines – 41,909,000 shares
• Southwest Airlines – 53,642,713 shares
• Delta Airlines – 71,886,963 shares
• United Airlines – 22,157,608 shares
In the second quarter of 2020, Buffett sold the entirety of his holdings in all these airlines. At the time, with a global pandemic on the rise, this was seen as a shrewd move by the Oracle of Omaha. However, despite the world crisis, all these airlines have increased in value. In fact, had he held onto his stock, the gains he would have made would look like this –
• American Airlines $502 million
• Southwest Airlines $1.56 billion
• Delta Airlines $1.87 billion
• United Airlines $654 million
Bringing the total cost of this decision to somewhere around $4.6 billion.
A DIY blunder
Up until 2009/2010, Berkshire Hathaway had substantial holdings in the DIY/Home Improvement chains Home Depot and Lowe’s. With Home Depot he owned over 3.7 million shares, with an approximate value of $110 million. He sold a quarter of these shares in 2009 and the remainder in 2010.
The story is similar with Lowe’s. In 2010 he sold Berkshire Hathaway’s entire stake of 6.5million shares. At the time this sale brought in around $160 million.
Had he held onto these shares their current market value would be $1.2 billion for Home Depot and $1.3 billion for Lowe’s. With around a further combined $200 million in missed dividends, this is a blunder that cost Warren about $2.3 billion.
No fairy tale ending with Disney
Warren Buffett’s history with Disney goes back a long way. In 1966, he invested $4 million for a 5% stake in a company that wasn’t yet the powerhouse it became. He held onto this stock for a mere year before selling for $6 million in 1967, making a quick 50% on his initial investment.
In today’s market that 5% holding would be worth $17 billion. With estimated dividend payments of $1 billion over the period, that means missing out on $18 billion.
But that’s just the start. Warren Buffett has been bitten twice by Disney.
In 1996, Berkshire Hathaway had shareholdings in Capital City/ABC. When Disney acquired the company in a cash and stock deal, Warren received nearly 25 million shares. By 2000 he had sold the lot for a return of around $577 million. In today’s market, these would be worth almost $14 billion.
The total gains he has lost in his two Disney episodes work out at $31 billion.