Investing lessons from Warren Buffett’s $9 billion Oncor ‘stumble’


A recent article in Fortune quotes an equity analyst who argues that Berkshire’s loss of two large acquisition opportunities this year “calls into question the effectiveness of their gentleman’s agreement acquisition strategy,” adding that unless something in Buffett’s negotiating tool box changes, it’s going to be difficult to maintain his reputation as a savvy and shrewd bidder.

But this is hardly the first time Buffett has lost a deal, nor will it be the last. You can’t build a track record such as Buffett’s without your share of misfires, and the Oncor deal is not alone in that distinction.

To use one of Buffett’s favored baseball metaphors, you shouldn’t swing at every pitch, nor should you expect every pitch you swing at to sail out of the park. The difference in the Oncor deal is the public attention it has received, the sort of coverage that invariably triggers a flood of public opinion and broad speculation. Humans need to create stories, after all, as any expert in behavioral finance will argue.

More from Active/Passive:
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The benefits of being a ‘lazy’ and ‘cheap’ investor

The fact that this isn’t Buffett’s first rodeo, however, isn’t even the point. Given what we know about his investment philosophy and approach (which inspired one of the stock-screening models I created for Validea), it’s safe to say that this guru investor is probably disregarding the press coverage.

While the hiccup does put a crimp in his plan to put Berkshire’s lofty cash balance to work for its shareholders, Buffett has made no bones about his intent to continue the deal search. (As a side note, it’s important to understand that Sempra has some hurdles to clear before bringing the deal to fruition, including both bankruptcy court approval and a green light from the Public Utility Commission of Texas, which nixed the last two advances for Oncor but approved Berkshire’s bid.)

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