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The 2008 Berkshire Hathaway Letter to Shareholders has just been published as written by the legendary Warren Buffett.
In it Warren demonstrates his typical humility about some of the poor investment decisions that he has made. In particular he refers to 2 of his bad equity investments:
1) An investment in ConocoPhillips based on high oil prices prevailing at their levels in mid-2008. Interestingly, Warren notes that he didn’t consult his colleague Charlie Munger on this trade (who states that playing poker helped to develop his business and investment skills).
2) A $244 million investment in 2 Irish banks during 2008 which subsequently fell in value by more than 90% from their purchase price.
Let’s look at Buffett’s ConocoPhillips investment through the lense of Texas Holdem Investing.
From reading previous Berkshire Hathaway Letters to Shareholders we can see that Warren Buffett only acquires companies that he understands. Therefore, we can assume that Warren was intimately familiar with ConocoPhillips before he made this investment. So he knew his “pocket cards” well for this game of investment Texas Holdem poker.
Buffett talks about his thoughts on oil prices in the description of the investment. This would lead to the conclusion that one of the main drivers behind the decision to invest was his feeling that oil prices would either remain high or continue to rise. This was the type of “investment flop” Warren was hoping for when he made this investment.
But as we know after peaking in mid-2008 the price of oil plumetted from the 140s to the 40s. So, soon after the investment Warren would have seen an investment flop that was awful.
But, instead of folding at that point, Warren stayed in the game for Turn and the River. Thankfully, in this game he didn’t have to put more money in to stay involved. But it didn’t change the fact that he could have exited the investment much earlier if he had made his decisions based on methods described in TexasHoldemInvesting.com.
Maybe Warren will read about Texas Holdem Investing sometime. Perhaps at the recommendation of Charlie. Now, where is Charlie Munger’s email address?
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