Nobody is Perfect

March 09, 2019 | Phil Knight


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Nobody is Perfect

For those of you who think investing is easy, think again. Even Warren Buffet, one of the world’s all-time greatest investors can get things wrong. And wrong in a big way.

Case in point Kraft Heinz – that loved maker of Maxwell House coffee, ketchup, Oscar Mayer hot dogs, and macaroni and cheese dinner that will last for 100 years. Indeed the company has been around for over 100 years and has annual revenues of over $26 billion dollars.

However, at the end of February, after a lackluster year which had seen its stock price decline from over $80 to under $50, Kraft managed to report earnings that were significantly below par, and which saw the stock price decline 27% in a single day. Kraft actually managed to lose more than $12.6 billion in the 4th quarter of 2018. Quite a feat.

What does this have to do with Warren Buffet? Well he owned over 325 million shares and so lost over $4.3 billion in a single day. And that is after declining more than 29% over the preceding 12 months!

To make matters worse, not only did the company report disappointing earnings, but they also disclosed that they had received a subpoena from the Securities and Exchange Commission investigating their accounting policies.

Oh and they also cut their annual dividend by 36%.

“They’re still very, very good businesses,” Buffett said of his consumer staple holdings Kraft Heinz (and Coca-Cola) as recently as May 2018.

How did the world’s most prominent investor, and largest single shareholder not see this coming?

As one of the most revered money managers, Buffett is renowned for his bargain-based buying strategy and long term holding strategy, which often takes many years for returns to materialize, and he likes to evaluate returns over ten year time periods.

With his insider track to the CEO and other top level management, access to the best analyst’s money can buy, and over 60 years of investment experience, you would have thought that he would have seen some of this coming. However, he did not, and his reluctance to see the shift away from junk food brands to healthier options has now hurt him in a meaningful way.

None of this takes away from the fact that Buffet has been a very successful investor over the long term, but it does highlight that even the best connected, most experienced investors can make mistakes. Whether it be from failing to gather all the information available to them, or by missing changes that are occurring in both society and in investing.

Stay diversified, and still with a long term plan people.

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March 8th 2019

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