Kraft Heinz’s Plunge Batters Buffett and Investors
Warren Buffett’s Berkshire Hathaway holds a big chunk of 325 million shares of Kraft Heinz, a mega blue-chip with iconic brands and dominant market share.
The investment is valued at nearly $14 Billion.
Unfortunately, yesterday, the stock tanked more than 26% after it reported “disastrous” earnings and got hauled up by the SEC for alleged faulty accounting policies.
Kraft Heinz plunges more than 26% at the open, setting new all-time low https://t.co/AzVJ1xVMmv pic.twitter.com/6LLHlALxu3
— CNBC Now (@CNBCnow) February 22, 2019
Kraft Heinz's biggest shareholder is Warren Buffett's Berkshire Hathaway. @taralach has wondered when the billionaire's admiration for the business would fade – or get the best of him https://t.co/umDtF7g2CY pic.twitter.com/ixuqGiL75K
— Bloomberg Opinion (@bopinion) February 22, 2019
$KHC Kraft Heinz down -25% today.
The company is extremely challenged as the business of selling refined carbohydrates is now in secular decline. Consumers are making healthier choices. Kool-Aid and Jell-o? Nope
Add $31.2 billion in debt and you have a recipe for disaster pic.twitter.com/Bs6PsPr43c
— Julian Klymochko (@JKlymochko) February 22, 2019
Kraft-Heinz delivered a triple-whammy to investors on Thursday:
? A $15.4 billion writedown in the fourth quarter
? A subpoena from the SEC
? A quarterly dividend cut of 36%It was only a matter of time before its strategy caught up with it https://t.co/JYzxZk7Pmn pic.twitter.com/NNnhqerdgz
— Bloomberg Opinion (@bopinion) February 22, 2019
I read a dozen articles over the last couple of years about the decline of ketchup and other "traditional" condiments in America but Kraft Heinz $KHC with the backing of Buffett was touted as a safe haven. This morning stock will open at all-time low down 2/3 from Feb 2017 high
— Charles V Payne (@cvpayne) February 22, 2019
Kraft Heinz hits the trifecta – SEC investigation, slashing the dividend, admitting no one will eat processed bologna in the year of our lord 2019.
You can do all the M&A and cost-cutting you want, the middle of the supermarket is a carb and salt cemetery. $KHC
— Downtown Josh Brown (@ReformedBroker) February 22, 2019
Kraft Heinz shares are now -17% after mega impairment and disclosure of SEC investigation. Feels like a complete implosion of the 3G Capital business model. All eyes on Warren Buffett now who backed the Brazilian dealmakers big time but become increasingly silent on them.
— Arash Massoudi (@ArashMassoudi) February 21, 2019
MTM Loss: $4 Billion in one day, $10 Billion since investment
Berkshire Hathaway suffered a MTM loss of $4 Billion over its investment in Kraft Heinz yesterday. The total loss since the investment was first made is a whopping $10 Billion.
Buffett is gonna be down $4B today on $KHC. 325 million shares. REKT.
— Ramp Capital ♿️ (@RampCapitalLLC) February 22, 2019
$KHC is a lovely case study on how you can attend the Buffett school of “value investing”, find a predictable cash generative company at a low valuation w/ a storied brand & great management – and still wake up to an SEC investigation, down 20% with your testicles in a vice grip
— Quoth the Raven (@QTRResearch) February 22, 2019
Now I don't feel so bad about my own portfolio
— grw1177 ? (@grw1177) February 22, 2019
So is that a good morning or a bad morning?
I mean on one hand you're down $4B.
On the other hand, you have the capability of being down $4B.
— Hurley? (@HurleyBirdFM) February 22, 2019
He definitely skipped McDonald’s this morning
— Giancarlo (@gianfc2001) February 22, 2019
Going with the $2.61 choice at McD’s this morning #Sad
— Millennial Capital (@MillennialCap1) February 22, 2019
Agreed. I knew I shouldn't have bought $KHC and now everyone is laying into me. Been a tough 12 hours.
— Ramp Capital ♿️ (@RampCapitalLLC) February 22, 2019
Warren Buffett’s Berkshire Hathaway stock falls as big bet on Kraft Heinz sours https://t.co/erd1RyPNZ3 pic.twitter.com/dDT50xvnky
— MarketWatch (@MarketWatch) February 22, 2019
Gurus should have concentrated portfolios, novices should diversify
Warren Buffett advised that diversification is a “terrible mistake”.
“Diversification is protection against ignorance. It makes little sense if you know what you are doing,” he opined.
However, Warren made it clear that his advice is directed towards professional investors who “know” what they are buying and why.
“Average investors should diversify widely to the extent of investing in an Index Fund,” he rightly advised.
However, the moot question is whether even the so-called professional investors really “know” what is going on.
We saw recent examples of fiascos like Kitex Garments, Manpasand Beverages, PC Jeweller, DHFL, Tata Motors etc which suggests that even the so-called knowledgeable investors haven’t a clue.
In fact, Tata Motors, which was once described as a “screaming buy” by experts, shocked everyone by reporting a loss of Rs. 26,961 crore.
Naturally, the stock crashed and eroded colossal fortunes in the blink of an eye.
Shocker result from @TataMotors
3rd consecutive quarter for losses for JLR at 3.1 bln pounds
JLR margins down 360 bps YoY at 7.3%
consolidated net loss of 26961cr hit by one time impairment loss
co challenging market conditions in china and inventory corrections hit earnings— Sonia Shenoy (@_soniashenoy) February 7, 2019
Even Bill Ackman, who is nicknamed “Baby Buffett” for his formidable investing skills, lost a massive fortune after one of his concentrated bets went sour.
If Ackman has taught us anything, it's that if you run a concentrated portfolio, don't be wrong. https://t.co/G2uyydQRgk
— Michael Batnick (@michaelbatnick) August 3, 2016
Never put more than 5% in one stock: Billionaires Jon Yarbrough & Kevin O’Leary
Following the debacles of concentrated portfolios, it is better if we follow the advice offered by Billionaires Jon Yarbrough & Kevin O’Leary and diversify widely.
“I lost 80% of that money in the dot com bust. I learned about diversification the hard way …. The best investment advice I’ve received is to be diversified. Being diversified is the best risk mitigator,” Jon Yarbrough said.
Kevin O’Leary echoed the same advice.
“Diversification is the only free lunch in investing ….
I see this happening so many times. Here’s the basic lesson that I’ve learnt that I never vary from. And this works, trust me.
Never more than 5% of your portfolio in any one name no matter how great the story is.
If it is the next Nortel, the next …., who cares.
5% max. For me, usually it is 2 ½ to 3%.
I never let a stock get bigger than that in my portfolio,” O’Leary said.
He also advised that we should “never ever, ever” have more than 20% in any one sector.
So much for an iconic brand losing 26% in one single day. Is it equivalent to some Anil Ambani Group companies in India. SEC investigation and write down of impaired assets is a huge challenge in America as well as in India as investors become informed and demand fair business practices from corporates.
Rain and Leel could be added to the Indian fiasco stock list.
One could have upto 10% in single stock through investment, no harm if stock weight goes beyond 10% due to appreciation. One can have minimum 20 stocks and maximum 40 stocks no stock with less than 1% weight.
I still would respect warren’s quotes to owing few stocks, things we need to ask is would he be the richest man if he had held 5000 stocks in his portfolio? one stock tanks for him, he will still be ranked no1….20 or 40 stocks a big no no
First of all, the amount is not huge considering his personal and Berkshire portfolio. Secondly, you look at portfolio returns and not individual stock returns.
Thirdly, even Berkshire or Apple stock had drawdowns of more than 50 per cent in few occasions but that didn’t make them bad investments.
It is not about bad investments but bad business with changes in tastes and people becoming health conscious rather than having excessive salts… then it becomes bad investment ….over and above that you have governance issues and debt overhang….perfect recipe for disaster….