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ConocoPhillips

ConocoPhillips is a major American energy company that occupies a significant place in Berkshire Hathaway history as one of Warren Buffett's most high-profile "mistakes of commission."

The "Major Mistake" (2008)

In the 2008 Letter, Buffett devoted a section to his "major mistakes," with the ConocoPhillips investment taking center stage alongside the Irish bank wipeout.

  • The Error: Buffett bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak.
  • The Timing: He failed to anticipate the dramatic fall in energy prices that occurred in the last half of 2008 as the global economy deleveraged.
  • The Financial Impact: At the end of 2008, the market value of Berkshire's holding was $4.4 billion, but its cost was $7.0 billion higher than that (a total basis of ~$11.4 billion).

Philosophical Takeaway: The Riptide

Buffett used this failure to illustrate that even a disciplined investor can "get caught in the riptide" if they abandon the Margin of Safety during a commodity boom. He blamed himself entirely, noting that the data was "right in front of his nose," but his optimism about energy prices clouded his judgement.

Quotes

  • "I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak... I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year." — 2008 Letter
  • "Even if prices should rise, the terrible timing of my purchase has cost Berkshire several billion dollars." — 2008 Letter

📚 Historical Mentions & Citations (1)

Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.

📜
2008 LetterExcerpt Available
▼
12/31/08 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 13.1 $ 1,287 $ 2,812 200,000,000 The Coca-Cola Company 8.6 1,299 9,054 84,896,273 ConocoPhillips 5.7 7,008 4,398 30,009,591 Johnson & Johnson 1.1 1,847 1,795 130,272,500 Kraft Foods Inc 8.9 4,330 3,498 3,947,554 POSCO 5.2 768 1,191 91,941,010 The Procter & Gamble Company 3.1 643 5,684 22,111,966 Sanofi-Aventis 1.7 1,827 1,404 11,262,000 Swiss Re 3.2 773 530 227,307,000 Tesco plc 2.9 1,326 1,193 75,145,426 U.S. Bancorp 4.3 2,337 1,879 19,944,300 Wal-Mart Stores, Inc 0.5 942 1,118 1,727,765 The Washington Post Company 18.4 11 674 304,392,068 Wells Fargo & Company 7.2 6,702 8,973 Others 6,035 4,870 Total Common Stocks Carried at Market $37,135 $49,073 I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
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