Warren Buffett loses big from Tesco share dive

Emma Woollacott
Warren Buffett Speaks At Conference Focused On Detroit's Revitalization
Warren Buffett Speaks At Conference Focused On Detroit's Revitalization

Billionaire investor Warren Buffett may be regretting his Tesco shopping, after seeing the value of his stake in the supermarket plummet.

Buffett's Berkshire Hathaway investment group is the third largest Tesco shareholder, behind Norges Bank and BlackRock, with a stake of just under 4%. But shares in the supermarket have dropped by a huge 43% this year, meaning that Berkshire Hathaway has lost as much as $750 million (£460m) on its initial $1.7 billion stake.

Tesco has issued a series of profit warnings over the year as competition from low-cost rivals has eaten into its market share. But its biggest disaster came earlier this week when the company was forced to admit that it had overstated profit forecasts for the first half of this year by £250 million.

Four executives have been suspended, and there's to be a full investigation by auditors Deloitte; but since the news came out on Monday, the company's shares have fallen by about 17% to their lowest level in eleven years.

Buffett has a reputation as having something of a Midas touch - and has a saying, "Be fearful when others are greedy and greedy when others are fearful." Many other investors have been successful in the past through following his lead.

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More Misery for Tesco After Dodgy Profits Announcement
More Misery for Tesco After Dodgy Profits Announcement

Lately, though, it's been short sellers - those that bet on a company's share price falling - that have been making money from Tesco. An analysis of the share register this week by the Independent indicates that two hedge funds – Lansdowne Partners and Lone Pine Capital - have shorted 50.4 million and 56 million Tesco shares respectively.

Analysts are concerned about the company's future prospects - especially as its present woes distract it from planning for the vital Christmas period.

"This is a very unwelcome distraction for the new management team, which instead of preparing their Christmas campaign, is focusing on having meetings with Deloitte and the regulators to get to the bottom of this," Jaime Vazquez, an analyst at JPMorgan Cazenove, told the Financial Times.

Still, there are still those that have faith in the troubled supermarket chain. It was revealed today that Newcastle United owner Mike Ashley, through his Sports Direct International company, has agreed with Goldman Sachs to buy 23 million Tesco shares at a fixed exercise price in future. The details aren't known, but give Sports Direct a potential exposure of £43 million were Tesco shares to fall to zero.

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