Its always disarming when people freelyadmit their mistakes. Investment legend Warren Buffett lost no admirers by confessing that his decision to buy Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) was a huge mistake.
We all make mistakes. Its reassuring to find ourselves in such exalted company.
Buffett is looking to make amends by belatedly offloading 245 million Tesco shares, to reduce Berkshire Hathaways holding to below 3%.
With the share price down more than 50% in the year, he will have made a massive loss. Luckily, he can afford it.
Betrayal
Buffett has admitted that he made a huge mistake by buying Tesco shares. But has he just committed another? By selling his shares in Tesco today, he is turning his paper losses into real losses.
His Tesco transactions have also betrayed his own philosophy. Instead of getting greedy when others are fearful, and fearful when others are greedy, he has donethe reverse.
He was greedy for Tesco when everybody else was greedy for Tesco, and fearful when everybody else was fearful.
Buy On Bad News
Here at the Fool, were bananas about Buffett but we also regularly warn investors not to do what he has just done, namely buy at the top and sell at the bottom.
Today looks like the wrong time to dumpTesco. Most of the bad news is in. The profit warnings are out there. The accounting scandal is being sorted. We know the dividend will be cut by 75%. Aldi and Lidl have lost the element of surprise.
New boss Dave Lewis is the beneficiary of all this, as it frees him to introduce radical change. The market is willing him to succeed. If he can transform public perceptions of the stricken supermarket, his stock will rise even faster than Tescos.
On The Contrary
Tesco is still the UK retail behemoth, but it now trades at an incredibly cheap 5.4 times earnings.
Management still anticipates ginormous trading profits of between 2.4bn and 2.5bn this financial year, even if that is down from original analyst expectations of 2.8bn.
The UK, Tescos home market, is growing faster than any other major economy. Employment is up, and if wages finally start rising too, that could put more money into shoppers pockets.
Markets wont be surprised if Tesco delivers more bad news, But any good news will come as a nice surprise, and investors like nice surprises. Tesco looks like a tempting contrarian buy right now provided you dont mind being contrarian to the greatest investor of them all.
Buying big companies like Tesco when they have hit hard times can make your fortune. You just lock in at the lower share price, and give the stock plenty of time to recover.
The latest Motley Fool special report, Seven Simple Steps For Seeking Serious Wealth, shows how a simple ‘buy and hold’ investment strategy could make you a stock market millionaire. Itcould be your best chance to Retire Seriously Rich.
The report won’t cost you a penny, but could ultimately help you become one of the UK’s surprise millionaires.
To find out more, click here now.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
