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ICONS & INNOVATORS

3 Times When Warren

Buffett Was Absolutely
Dead Wrong The Oracle of
Omaha doesn't often make
mistakes. does.

BY MINDA ZETLIN, CO-AUTHOR, THE GEEK

GAP
@MINDAZETLIN

Getty Images

Warren Buffett is called the

Oracle of Omaha for a

reason. The predictions he makes

usually come true. But not always.

Recently, Business Insider took a

look at 12 predictions Buffett made

and how they turned out. From his

prognostications about Bitcoin (that

it would run into serious trouble) to

the Flat Earth Society (that it would

flourish), he was right on the money

with most of them.

But there were just a few times when

his predictions failed to come true,

and you can probably learn more

from those times he had to admit he

was wrong than the more numerous

occasions when he was proved right.

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Here's a look at a few of Buffett's

rare wrong predictions:

1. Berkshire Hathaway's
48.2 percent net-worth
growth in 1985 would
never be repeated.

In fact, he wrote in that year's letter

to shareholders, "It is fitting that the

visit of Halley's Comet coincided

with this percentage gain: neither

will be seen again in my lifetime."

Likewise, he said, the company's

annual growth in share price of 23.2

percent averaged over the previous

21 years was "another percentage

that will not be repeated."

Buffett was wrong on both counts.

Berkshire Hathaway's net worth

went up by 48.3 percent in 1998. But,

as he cautioned investors, that

number was somewhat misleading:

The increase in book value resulted

from the issuance of stock. As for

"another percentage that will not be

repeated," it's not entirely clear

from Buffett's letter to shareholders

whether he meant that percentage

growth wouldn't ever be repeated

over a 21-year period or whether it

would never be repeated at all. If he

meant the former then he may be

right--on average, Berkshire

Hathaway has grown by an

annualized rate of that's closer to 20

percent than 23 percent since then.

But as for an individual year with a

23.2 percent gains or higher in share

price? That's happened 11 times

since 1985.

The thing about Buffett is that even

when he's wrong, he's right. One of

his most-quoted instructions is, "Be

fearful when others are greedy and

greedy when others are fearful." A

less pithy way of saying that is that

things that are gaining value rapidly

will eventually slow down or lose

value, and things that are losing

value will eventually regain it. So it

seems likely that what Buffett was

really trying to say was: "We've had a

really good run, but don't count on

it to continue this way."

And, as this analysis shows, it

didn't. Berkshire Hathaway stock

isn't outperforming the market the

way it once did, something that

Buffett predicted would happen in

part because of the company's sheer

size.

2. Berkshire Hathaway
would never sell Capital
Cities/ABC or the
Washington Post.

"We expect to keep permanently our

three primary holdings, Capital

Cities/ABC, Inc., Geico Corporation,

and The Washington Post," Buffett

wrote in his 1986 shareholder letter.

But "permanently" is a long time,

and things can change along the

way.

For many years, Capital Cities was

run by the team of Tom Murphy and

Daniel Burke, executives who Buffett

said were "probably the greatest two-

person combination in management

that the world has ever seen or

maybe ever will see." He believed in

this team so much that he helped

them acquire ABC in what was then

the biggest non-oil acquisition in

history.

By 1996, though, Burke had retired

and Murphy was turning 70. So

when Murphy decided to sell Capital

Cities to Disney--a deal that Buffett

apparently suggested--Buffett sold

his stake in the company to Disney

as well, in a stock and cash sale

worth $2.5 billion.

As for the Washington Post

Company, Buffett sold Berkshire

Hathaway's 28-percent stake back to

the company, now named Graham

Holdings, in 2014. But this was a year

after the Graham family had sold

the Washington Post newspaper to

Jeff Bezos, thus prompting the name

change. So the company Buffett

originally invested in was no longer

the same.

3. Gillette and Coca-Cola

will always dominate their
industries.

"No sensible observer--not even

these companies' most vigorous

competitors, assuming they are

assessing the matter honestly--

questions that Coke and Gillette will

dominate their fields worldwide for

an investment lifetime," Buffett

wrote in his 1996 shareholders later.

Both companies do dominate their

fields for the moment, but there are

clouds on the horizon. Gillette's

market share has dropped from 70

percent in 2010 to 54 percent last

year, in part due to the growth of

Dollar Shave Club and Harry's. Fifty-

four percent of the market still

means Gillette is very much the

market leader. But if the

downward trend continues, that

dominance may not last for "an

investment lifetime," depending on

what Buffett meant by that phrase.

As for Coca-Cola, it's the undisputed

market leader with somewhere

around 40 percent of the soft drink

market, well ahead of rival Pepsi.

But the category itself is under siege

and even though Buffett has a Coke

machine in his office and drinks the

stuff on camera every chance he gets,

consumers are turning away from

sugary (or artificially sweetened)

sodas and toward healthier drinks, a

trend that's put pressure on Coke's

bottom line.

What will Buffett do about these two

holdings in the future? One of his

strengths is that he seems to know

when to double down on an existing

investment and when to get out. So

we'll just have to wait and see.

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