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

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• References: 2008 Letter, Investment Mistakes, Circle of Competence
• Index: index