Bad week for Buffett
If you think your week has been rough, just know that it could be worse. Warren Buffett, hailed as an investment genius, lost about $2 billion in two days.
That is how much Steve Ballmer just paid for the L.A. Clippers. It is safe to say that it has not been the best week for the Oracle of Omaha, a man regarded as the greatest investor of all time.
On Monday, IBM announced they would be paying $1.5 billion dollars for GlobalFoundries to take over IBM’s chipmaking business. Not only are they losing a major and essential part of their business, but they are losing $1.5 billion dollars in the process. The news sent IBM’s stock prices plummeting. It was down 7 percent at the end of the day, bad news for Buffett who holds over 70 million shares of the company through his investment company, Berkshire Hathaway.
On Tuesday, Buffett saw another $1 billion disappear as his most iconic holding, Coca-Cola, fell 6 percent. Coke reported weaker than expected earnings and revenue as well as unimpressive growth. Buffett has expressed praise for Coca-Cola and the company’s fundamentals. Unfortunately for him, the company just experienced their biggest decline in stock price in six years.
Fortunately for Buffett, in a demonstration of the importance of diversification, his top holding in Wells Fargo earned him a welcome $740 million during the same time period. His number three holding, American Express, also treated him well. The profits do not nearly cover the massive losses from IBM and Coke, but it has to be some comfort.
The loss represents the mystery of the stock market. It does not matter how smart you are, sometimes you will lose. If Warren Buffett’s second and fourth largest holdings can lose as much as they did in two days, the average investor should expect the unexpected.
The biggest takeaway from these huge losses is clear: investors should never bet on companies, they should bet on well-diversified and smartly allocated portfolios. IBM and Coca-Cola are two of the biggest, most successful companies ever. They both command huge market shares and both have been lauded by Buffett. Yet, both have questionable futures. There are no guarantees in the stock market.
This news comes amidst a variety of other negative news from the stock market. This month’s market volatility is unprecedented in the past few months. The overall market pullback probably worsened the situation for IBM and Coca-Cola.
Of course, for the man worth more than $60 billion, $2 billion is not much more than a drop in the bucket. It must be nice to have the cushion that Buffett has, who recently stated he is not worried about the stock market. If I had that much money, I do not think I would be either.