Buffett loses $900m by not consulting partner Munger; Billionaire investor admits he made a “big mistake” in spending $2bn to buy EHF debt without asking for the opinion of his long-serving collaborator Charlie Munger

March 5, 2014 Leave a comment

Buffett loses £537m by not consulting partner

Billionaire investor admits he made a “big mistake” in spending $2bn to buy EHF debt without asking for the opinion of his long-serving collaborator Charlie Munger

In his annual letter to Berkshire Hathaway shareholders published at the weekend, Mr Buffett said he wished he had “never heard” of Energy Future Holdings (EHF) Photo: REUTERS

By Harry Wilson, Banking Editor

12:39AM GMT 03 Mar 2014

Even the world’s most successful investors can get it wrong.

Step forward Warren Buffett, the billionaire founder of Berkshire Hathaway, who has admitted to an investment that has lost him nearly $900m (£537m) – after he failed to consult his long-time business partner.

In his annual letter to Berkshire Hathaway shareholders published at the weekend, Mr Buffett said he wished he had “never heard” of Energy Future Holdings (EHF), a company founded seven years ago to buy Texas electricity utilities. It now appears to face certain bankruptcy.

Mr Buffett said he had spent $2bn (£1.2bn) buying EHF debt without asking for the opinion of his long-serving collaborator Charlie Munger, which he now admitted had been a “big mistake”.

“Unless natural gas prices soar, EHF will almost certainly file for bankruptcy in 2014. Last year, we sold our holdings for $259m. While owning the bonds, we received $837m in cash interest. Overall, therefore, we suffered a pre-tax loss of $873m. Next time I’ll call Charlie,” wrote Mr Buffett.

His admission came in a year when Berkshire Hathaway failed to outperform the S&P 500 index, only the tenth time this has happened since Mr Buffett founded the business 49 years ago.

Taken over their life, the value of Berkshire shares have easily outperformed the stock market, with the book value of each Berkshire increasing by 693,518pc since 1965, compared with 9,841pc for the S&P. Mr Buffett added that Berkshire’s intrinsic value “far exceeds” the book value and said the difference between the two measures had “widened considerably in recent years”.

He added: “Charlie Munger, Berkshire’s vice chairman and my partner, and I believe both Berkshire’s book value and intrinsic value will outperform the S&P in years when the market is down or moderately up. We expect to fall short, though, in years when the market is strong – as we did in 2013. We have underperformed in 10 of our 49 years, with all but one of our shortfalls occurring when the S&P gain exceeded 15pc.”

With such a long track record of success, Mr Buffett’s annual letters are closely followed around the world for his views on the market.

 

Filed under Investing Process

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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