Warren Buffett’s 10 Most Notable Stock Setbacks
Even the legendary Warren Buffett isn't immune to investment missteps. Despite his acclaim as one of the greatest investors ever, Buffett has experienced several underwhelming stock performances.
Warren Buffett, celebrated globally as an unparalleled investment genius due to his decades of exceptional returns, openly admits to being fallible and having made his share of investment errors. As of December 31, 2017, Berkshire Hathaway Inc. (BRK-A) held 45 U.S.-listed stocks, according to SEC disclosures. While many of these have been lucrative, not every stock in Buffett's portfolio has been a winner. Some holdings have delivered returns that may satisfy some investors but fall short of Buffett’s historic standards.
Underperforming Stocks
Among these holdings, here are the 10 stocks with the poorest total returns (including dividends) over the five years ending May 2, 2018, along with their 10-year returns as compiled by FactSet Data Systems Inc. and analyzed by MarketWatch.
1. Teva Pharmaceutical Industries Ltd. (TEVA): Shares plunged 45% over five years and lost 52% across a decade. Berkshire Hathaway acquired nearly 19 million shares in late 2017.
2. Sanofi ADR (SNY): This pharma giant’s ADR declined 20% over five years but posted a respectable 34% return over ten years.
3. International Business Machines Corp. (IBM): Buffett’s rare tech bet yielded a 48% return over ten years but suffered an 18% loss in the last five. Berkshire fully exited IBM in 2018.
Investor Insights from Warren Buffett: Part 1
4. Procter & Gamble Co. (PG): After Berkshire became a shareholder in 2005 through Gillette’s acquisition, PG delivered 45% over ten years and 7% over five. Berkshire sold a large portion in 2016 but retained over 300,000 shares by end of 2017.
5. DaVita Inc. (DVA): Specializing in kidney care, DaVita returned 8% over five years and an impressive 143% over ten years.
6. Verizon Communications Inc. (VZ): This telecom giant generated 14% over five years and 114% over a decade.
7. Coca-Cola Co. (KO): Buffett's long-term investment since 1988 yielded 17% over five years and 95% over ten. Known for his fondness for Cherry Coke at home and classic Coke at work.
8. Mondelez International Inc. (MDLZ): Berkshire owned 578,000 shares by December 2017. The maker of Oreo and Chips Ahoy! returned 31% over five years and 135% over ten.
9. General Motors Co. (GM): Despite recent challenges, GM provided a 38% return over five years since its 2010 public listing.
10. United Parcel Service Inc. (UPS): Facing competition from Amazon, UPS still returned 50% over five years and 104% over ten.
For context, the S&P 500 returned 83% over five years and 131% over ten years through May 2, 2018, according to Yahoo Finance. Notably, Mondelez and DaVita outperformed the market over the decade.
Methodology Notes
Out of Berkshire’s 45-stock portfolio, 27 showed negative returns year-to-date through May 2, 2018. Given Buffett’s long-term investment philosophy, five- and ten-year performance metrics provide a more accurate picture. These figures exclude Berkshire’s international investments.
Among the 27 year-to-date losers, 20 stocks were held for at least five years, and 17 for ten years. Of those held five years or longer, 16 underperformed over five years; among those held ten years or more, 11 lagged over the full decade.
Four Key Lessons from Buffett’s Investment Errors
Buffett openly acknowledges his missteps, offering valuable lessons for investors, as highlighted by MarketWatch: avoid emotional decision-making, appreciate customer loyalty, don’t overly depend on numbers alone, and be willing to cut losses promptly.
For example, Buffett’s initial investment in Berkshire Hathaway—a struggling textile firm—turned sour. Despite recognizing the mistake, he continued buying shares out of frustration over a shareholder dispute, resulting in significant losses, which he termed "a monumentally stupid decision" in his 2014 shareholder letter.
Customer loyalty’s importance became clear early in Buffett’s career when he and a friend failed to attract customers to a gas station they purchased, overshadowed by an established competitor. This principle likely influenced his long-term investment in Coca-Cola.
Buffett also stresses that while quantitative analysis is critical, the largest gains often come from sound qualitative judgments. He believes successful investing transcends formulas and numeric models.
Finally, Buffett’s hesitation to fully divest from Tesco in 2013 despite management concerns led to a $444 million loss after accounting scandals emerged. This underscores the necessity of decisive action when cutting losses.
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