The Stock That Ruined Warren Buffett's Week

Imagine losing a billion dollars in one week and not even flinching. If you're Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway (NYSE: BRK-A  ) , you won't need much of an imagination.

Thanks largely to the post-earnings plummet of IBM (NYSE: IBM  ) -- which was the fourth worst performing component on the S&P 500 (SNPINDEX: ^GSPC  ) last week, down by more than 10% -- Buffett did just that. According to data supplied by Standard & Poor's Capital IQ, his company's top five equity holdings lost a total of $934 million from when the market opened on Monday until it closed for the weekend on Friday. That equates to a loss of $9.3 million an hour, $155,657 a minute, and $2,594 a second.

Stock

Monday Open

Friday Close

Shares

Gain/(Loss)

Wells Fargo

$37.02

$36.69

466,410,061

($153,915,320)

Coca-Cola

$40.85

$42.66

400,000,000

$724,000,000

IBM

$210.44

$190.00

68,115,484

($1,392,280,493)

American Express

$65.53

$67.24

151,610,700

$259,254,297

Bank of America

$12.19

$11.66

700,000,000*

($371,000,000)

Source: Standard & Poor's Capital IQ.
*Relates to purchase warrants obtained in 2011.

IBM wasn't the only culprit. Following Bank of America's (NYSE: BAC  ) earnings release on Wednesday, the nation's second largest bank by assets fell precipitously, taking shares of Wells Fargo, the nation's fourth largest bank by assets, down with it.

Yet, all was not lost. Shares of Coca-Cola (NYSE: KO  ) , Buffett's longtime favorite, rallied after the soft-drink maker impressed analysts and traders with the quality of its first-quarter results. And American Express similarly shot up following its own earnings announcement in the middle of the week.

It's worth nothing, moreover, that while these are Berkshire's largest public equity holdings, there are plenty others -- 44 others to be precise, according to Capital IQ. In addition, Berkshire's stock portfolio is only one component, and a small one at that, of its larger operational superstructure, which includes full ownership stakes in the likes of GEICO Auto Insurance, See's Candy, and Burlington Northern Santa Fe, to name only a few. It's for this reason, in turn, that Buffett probably didn't even bat an eye last week.

Want to learn more about Berkshire Hathaway?
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


Read/Post Comments (15) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2013, at 5:12 PM, shineridge wrote:

    It's hard to feel sorry for Buffet, a BILLIONAIRE who makes his billions without ever doing ANY actual WORK. The man is nothing but a GAMBLER. Not illegal but not REAL WORK either !!!!!

  • Report this Comment On April 20, 2013, at 7:23 PM, Snoopy2012 wrote:

    @shineridge...

    Move to NK and you can be a real working and can get the reward accordingly

  • Report this Comment On April 20, 2013, at 7:23 PM, Snoopy2012 wrote:

    *worker

  • Report this Comment On April 20, 2013, at 8:56 PM, MarshallJohn wrote:

    No the stock price movement of IBM didn't phase Warren Buffett. But it did give the Motley Fool yet one more opportunity to write a sensational headline in its desperate attempt to gain page views.

  • Report this Comment On April 20, 2013, at 9:47 PM, dofaust wrote:

    The "Motley Fool" (MF) was 180 degrees off on the dot-com situation, maintaining until the end that those would drive to a 20,000 Dow...Also, the MF was also 180 degrees off, remaining bullish on real estate until even _after_ the bubble. A small minority of investors - I know one - actually did common-sense RESEARCH - and bet against real estate, and became mufti-millionaires in a few months. Nor did MF see Enron or Ponzi tricksters coming of course, nor the vast world-wide devaluation of pensions. Millions of investors lost trillions of equity, based on advice such as from the MF.

    It occurred to me then that the MF has been learning about markets at the expense of their audience. Who hired these grad-students, anyway???? Whatever they like, history has shown that they are wrong. Why listen to MF, rather than do one's own research, and listen and understand to what successful investors have done?

  • Report this Comment On April 20, 2013, at 10:45 PM, taberm wrote:

    AWWWWWW Poor baby...now he will have to go crying to Obama that he needs more government money. But now he won't be able to pay extra taxes as he said everyone should do! Hypocrite! No sympathy!

  • Report this Comment On April 20, 2013, at 10:58 PM, sciencedave wrote:

    Thanks for the article. It is always good to know even the best can have bad weeks.

    And by the way.....neither the Mötley Fool, Warren Buffet, or anyone out there can predict the future. Very few financial analysts predicted Enron collapse, Worldcom, or the housing mortgage collapse. The Mötley Fool has done more to educate the public than any free or pay service out there. I especially like the posted opposing points of view; educating me but allowing me to make up my own opinion.

  • Report this Comment On April 21, 2013, at 8:44 AM, Gorf1 wrote:

    Back in the old days MF used the 4 out of the top 10 dow dividend producers but throwing out the lowest $ one of the top 10. I liked this philosophy but made no money at it. They have changed their philosophy several times since then. After tracking MF, Cramer, Money et al I've decided that indexing is the way to go. I've noticed that most of the MF stories are usually the day after something happens ie worthless information. Concentration on before earnings releases et al would help the small individual investor much more than a post facto story.

  • Report this Comment On April 21, 2013, at 9:40 AM, momfarf wrote:

    Ahhhhh! Poor baby! He's stil millions above how most of us have to live!

  • Report this Comment On April 21, 2013, at 11:09 AM, tomd728 wrote:

    So who has a good entry point for IBM after all this baby talk.

    This bickering is better served on another venue.

  • Report this Comment On April 21, 2013, at 12:45 PM, banmate7 wrote:

    These silly kinds of articles continue to confuse & mislead the average investor. First of all, I believe Buffett is averaged into IBM at around $160 a share, so he doesn't have even a paper loss. Secondly, well, he after all didn't sell & hasn't lost anything. Thirdly, he is reaping a significant total dividend that IBM pays, putting that capital to use.

    IBM is a great company & remains a great long term investment. It spends $6 billion a year on R&D. It dominates corporate computing & is actually pretty innovative in this space. Having been around for 100 years, I'd say it's a good bet IBM will continue to prosper. They have all the stack components for cloud & mobile computing, as well as in-house computing solutions.

    It's a fair buy right now at a PE of 13. Like Oracle, it suffered a recent hit due to global economic volatility. Growth is hard to come by, but I believe IBM will grow in the coming 5 years, as I believe the global economy is positively sorting itself out from a debt & cheap money cycle.

    In my opinion, this is a good entry point. Over 5 years, you should beat the market by reinvesting dividends. Best of luck.

  • Report this Comment On April 21, 2013, at 12:53 PM, TMFMorgan wrote:

    <<Also, the MF was also 180 degrees off, remaining bullish on real estate until even _after_ the bubble>>

    Keep in mind, this is no single "Motley Fool" voice. We are all different investors with different opinions. And many were quite bearish on real estate prior to the crash:

    http://www.fool.com/investing/general/2007/04/12/house-price...

  • Report this Comment On April 21, 2013, at 1:52 PM, peterwolf wrote:

    It's the economy stupid. Most tech stocks are getting smacked because of the declining global economy. Not even giants like IBM or Oracle can buck that trend.

  • Report this Comment On April 21, 2013, at 4:11 PM, TheFeaz wrote:

    Rather than ruining his week, I'm certain that Mr. Buffett was pleased with this week's price movement on Berkshire Hathaway's valuable holdings. He said he would be in his 2011 letter to the shareholders. He even used IBM as the example to make his point.

    When Warren Buffett purchases shares of a company, he knows a few things:

    (1) It is a well-run company in a good business w/ a sustainable competitive advantage

    (2) He is purchasing those shares at a discount to intrinsic value

    (3) He is purchasing the right to a percentage of the firm's earnings.

    When a firm's shares fall below intrinsic value then smart managers in good financial position buy back shares as IBM has been. In 2011, Berkshire owned 63.9M shares out of 1.16B or ~5.5% of the firm and it's earnings. With an educated guess, Mr. Buffet suggested that IBM would spend $50B over the next several years on repurchases as long as the stock price remained below intrinsic value.

    With that $50B, IBM would repurchase 250M shares if the stock price were $200/share. This would leave 910M shares outstanding making Berkshire's interest ~7%. But, if the share price were $300, then IBM would purchase 167M shares leaving 990M outstanding and Berkshire's portion would be ~6.5% of the firm.

    Clearly, the lower share price scenario is the better situation for Berkshire Hathaway and it's shareholders, since 7% of a great firm with a good outlook is better than 6.5% of the same firm. The ideal situation, for Berkshire Hathaway, would be if the price remained low enough such that IBM reduced it's number of shares outstanding to 63.9M and Berkshire owned 100% of the firm and it's earnings.

    As it stood at the end of 2012, Berkshire owned 68.1M shares of IBM against an outstanding balance of 1.11B shares, or ~6.1% of the firm. I will be surprised if Berkshire Hathaway and IBM aren't both buying shares next week.

    This article's headline is both sensationalized and misleading. The credibility of the author and the credibility of the outlet suffer when these tactics are employed.

    This author owns a very small percentage of Berkshire Hathaway.

  • Report this Comment On April 21, 2013, at 7:28 PM, RWILTSR wrote:

    Buffett does not gamble.

    With the biggest pile at the table he can bluff his way to a win in any situation.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2375004, ~/Articles/ArticleHandler.aspx, 9/30/2014 4:01:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement