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When Berkshire Hathaway (NYSE: BRK.B) reported earnings earlier this month, investors were shocked. The iconic company mounted a staggering $49.7 billion loss during the first quarter alone.
Much of the blame rests with the Berkshire Hathaway portfolio of investments, including the more than 90 companies it owns ranging from railroads to insurance businesses.
Three of Warren Buffett’s investments in particular have gone horribly, wrongly, terribly bad.
Two are deals from 2013.
In August, Berkshire sank $10 billion in Occidental Petroleum (NYSE: OXY), which went on to be the biggest operator in the Permian Basin, not only the best producing oil field in the U.S., but in the world.
Berkshire got 100,000 preferred shares for its investment and it worked out well enough, at least for the first six months.
Then oil prices collapsed.
While Berkshire is guaranteed its 8% annual dividend on the preferred shares, Occidental has cut its common dividend by more than 80% as its shares have plunged from $44 at the time of the deal to less than $15 today.
Berkshire also partnered with 3G Capital, a private equity firm, to buy Heinz Co. for $23.2 billion, then they purchased Kraft Foods Group two years later for $54 billion.
Unfortunately for Berkshire and 3G, people just don’t eat processed foods like they used to, and sales have plummeted.
As a result, Berkshire has had to write down the value of its investment by $3 billion and more write-downs are likely coming.
As if those two deals haven’t gone wrong enough for Berkshire, Buffett has compounded the error by not taking his own advice.
The same year Buffett was inking the deals on Occidental and Heinz, he famously called airlines an investor deathtrap.
Despite that, he piled into shares of all four major American airlines between 2016 – 2017. Then, the novel coronavirus hit and airline stocks have completely tanked. According to public filings, Berkshire has dumped all its airline holdings, but the company has likely lost billions of dollars in the process.
Personally, I don’t think Buffett has lost his edge. Not every investment can be a winner and that’s especially true when your investments are spread across hundreds of companies. On top of that, the novel coronavirus came on hard and fast, taking most investors by surprise.
I am surprised Buffett didn’t take his own advice about the airlines, though. That one is a head scratcher.
Here’s to Profits,
Ben Shepherd