Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett may be the greatest investor of our generation -- he did turn $10,000 in seed capital into $82 billion in net worth -- but he's not infallible.
Take, for example, Buffett's investment in U.K. grocer Tesco. As of 2012, Buffett owned 415 million shares of Tesco through Berkshire Hathaway. Although the Oracle of Omaha did wind up selling a portion of his company's Tesco position for a small profit, Buffett would ultimately take a $444 million bath on the investment, after taxes, following the admission from Tesco that it had overstated its profits.
Another blemish is Berkshire's existing investment in branded and generic drug developer Teva Pharmaceutical Industries. Even though the decision to buy Teva looks to have been made by one of Buffett's trusted investment managers, it doesn't hide the fact that Teva's share price is down more than 70% over the trailing year amid a flurry of problems, including opioid-related lawsuits that the company is facing from 44 U.S. states.
Buffett's buy-and-hold ethos did not apply to these stocks
But not all of Buffett's "mistakes" were the result of buying companies that went south. Sometimes, the costliest errors come from selling great companies too early -- of which even the buy-and-hold master Buffett can be guilty.
Here are three brand-name stocks that Warren Buffett sold way too early, and which have subsequently cost the Oracle of Omaha well over $17 billion in lost gains.
There's no question that the biggest blemish, in my eyes, on Buffett's illustrious investing career is the fact that he held investments in amusement park and content provider Walt Disney (NYSE:DIS) on two separate occasions and wound up selling his stake far too early.
Back in 1966, Buffett visited with then-CEO Walt Disney, who was in the middle of expanding the Disneyland theme park in Southern California. Disney, which had a relatively small vault of movies and its burgeoning theme park, wasn't being viewed as anything particularly special by Wall Street at the time. However, it did have a flawless balance sheet that spurred Buffett and his investment partners to take a 5% stake in the company ($4 million). The Oracle of Omaha would sell his stake in Disney the following year (in 1967) for $6 million, netting a cool $2 million profit.
Oh, what could have been! Based on today's closing price, this initial 5% stake in Disney would be worth $12 billion, with more than $1 billion worth of dividends paid over the past five-plus decades.
Then, in 1995, Disney acquired Capital Cities/ABC, of which Berkshire Hathaway owned shares. The cash-and-stock deal led to Berkshire owning 21 million shares of Disney stock. But, like before, Buffett quickly pared the position. Today, this position would be worth close to $2.8 billion, and it would also have brought in close to $300 million in dividend income.
All told, Buffett's two exits from Walt Disney stock have cost the Oracle of Omaha about $16 billion in would-be appreciation and dividends.
Believe it or not, Buffett once favored the do-it-yourself home improvement giant Home Depot (NYSE:HD). Berkshire Hathaway opened a position in Home Depot during the second quarter of 2005, aiming to take advantage of what seemed like an unstoppable housing market. But as you're likely aware, America's love affair with the housing market came to an abrupt halt in the late 2000s, and Home Depot lost its luster in the eyes of Warren Buffett.
At its peak, Berkshire held 3.7 million shares of Home Depot. However, Buffett and his company sold a quarter of its position in the home improvement retailer during the second quarter of 2009 (near the lows of the Great Recession), and dumped the remainder in the third quarter of 2010. We know this because Berkshire Hathaway is required to file Form 13F with the Securities and Exchange Commission no later than 45 days after the end of the previous quarter, thereby disclosing its holdings.
But since then, the home improvement retailer has been virtually unstoppable. The thing about Home Depot is that it caters to both sides of the construction market. In other words, it speaks to homeowners through remodels, and serves as a go-to source for contractors, which has played a big role in its recovery.
Although we don't know exactly how much Buffett disposed of his shares for, we do have some generalized idea of how much money he left on the table by walking away. After ending Q2 2009 at $18.46 and Q3 2010 at $25.75, when adjusted for dividend payouts, Home Depot was valued this past week at nearly $228 a share. This suggests that Buffett has missed out on more than $750 million in share price appreciation and dividend income since putting Home Depot back on the shelf.
Amazingly, this wasn't Buffett's only do-it-yourself mistake. In addition to owning stock in Home Depot, Berkshire Hathaway also opened a position in Home Depot's lead rival, Lowe's (NYSE:LOW). At one time, Berkshire Hathaway held a 6.5 million-share position in Lowe's, but completely parted ways with the company during the fourth quarter of 2010, one quarter after it sold its remaining stake in Home Depot.
The thesis of owning Lowe's was the same as Home Depot: It offered exposure to a historically strong housing market. When the bottom fell out on housing, Buffett and his team sought to unload the position on any meaningful rally. Of course, as we now know, Buffett's pessimism on the housing industry and do-it-yourself market proved incorrect. Even though Lowe's continues to play second fiddle to Home Depot, predominantly given its appliance-heavy leanings that have kept its margins clearly behind its primary rival, it's handily outperformed the broader market since Buffett headed for the exit.
Once again, we don't exactly know what price Berkshire Hathaway sold Lowe's, but Lowe's stock did end 2010 at $21.38 a share on a dividend-adjusted basis. This past week, though, it hit $111 a share. This suggests that Buffett has given up about $585 million in share price appreciation and dividends by parting ways with the home improvement retailer way too early.