Warren Buffett losing US$700 million in Tesco & iCapital International Value Fund

This fund started investing in July 2009. Its performance in AUD since then is shown below together with the benchmarks MSCI ACWI index and ASX200.

Table: 1 Jul 2009 to 31 Aug 2014

		Total Return		% Change
	Currency	01-Jul-2009	31-Aug-2014
ICIVF	A$	1.0000	1.4639	46.39
MSCI ACWI	A$	1204.2423	461.3982	50.71
ASX200	A$	306.1537	5625.9000	45.22

Commentary

Mindful of the rich valuation many markets are trading at, Capital Dynamics (Australia) Ltd continues to maintain the high cash level of your fund. Is this right?

Patience is more than inactivity; it is working diligently without being anxious. Although constantly on the lookout for new opportunities, Capital Dynamics (Australia) Ltd needs to have the patience to wait for the right investment to fall into the right price range.

Unfortunately, many amateur and professional investors succumb to all sorts of pressure to avoid subpar quarterly performance or personal pressures to avoid the feeling of being left out as the market surges. They make the classic mistake of seeing investment opportunities because they want it to be there, not because they’re actually there.

An investor who has fallen into this trap, in other words, will start to gradually twist the facts, skew his own perception of the situation, and even erode his own standards for investment, just to make that investment opportunity available.

In this day and age, patience is in short supply now, which is precisely why it is a valuable core strategy. As we wait, it is interesting to note that the Oracle of Omaha, Warren Buffett, is getting hit in the Tesco debacle, having lost over US$700 million on his US1.7 billion investment, which was made in 2007. 

What is not known to many, however, is the fact that Capital Dynamics (Australia) Ltd sold all of your fund’s holdings in Tesco Plc way back in 2011. Less than a year later, Tesco dumbfounded investors by issuing a profit warning for the first time in 20 years, and reported a decline in annual profit last year. While not a massive $320 billion global conglomerate and lacking the resources and manpower Buffett has, Capital Dynamics (Australia) Ltd, a relatively small investment firm, is proudly rooted in Asia but with a global perspective and capabilities.


The NAV and distribution history of i Capital International Value Fund can be viewed at www.capitaldynamics.com.au or www.funds.icapital.biz.


Those who invested in this fund would have received this report.