In his letter to Berkshire shareholders just released, Warren Buffett confessed:
I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
A little background here: Warren Buffett started to buy COP in the first quarter of 2006, own about 18 million shares until the first quarter of 2008. He significantly and secretly added to COP, as GuruFocus as guessed (see: Warren Buffett May Have Quadrupled Berkshire Hathaway’s Position in ConocoPhillips) to about 84 million shares by the third quarter of 2008. Berkshire ’s cost per share with COP is averaged at about $80. Last Friday COP is closed at $37.35. GuruFocus estimated Berkshire has lost more than $3.7 billion with COP , which is more than 55%.
Furthermore, Warren Buffett talked about his other mistakes:
I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.”
You cannot time the market, even if you are Warren Buffett. And you don’t need to time the market to be successful in investing. Warren Buffett proved this (again) with his mutli-billion dollar mistake with ConocoPhillips (COP). Evidently Warren Buffett had to sell some of the ConocoPhillips (COP) at a loss to raise cash.
With oil traded at $40, and COP lost more than 60% from its peak, is ConocoPhillips a buy now? Our users have given COP a fairvalue above $70, COP is traded at historical low valuations.
What does Warren Buffett think in current market climate:
Things also went well on the capital-allocation front last year. Berkshire is always a buyer of both businesses and securities, and the disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.
Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
If you still remember, a few years ago Buffett said that he had an elephant gun, and cannot find elephants. Today too many elephants are running around, even Warren Buffett run out of gunpowder.