Why was Buffett wrong on Tesco?

Last week Warren Buffett was frank on CNBC and admitted that he made a mistake investing in Tesco ($TSCO.L). It’s hard to argue with him, shares in Tesco have gone only one way since he first invested in them in 2007.

I myself am among the unlucky Tesco shareholders, however was fortunate in early 2013 to realize my folly and sell almost all my shares (and even make a small profit). Though Tesco made many obvious mistakes such as its failed entry into the US market, it is actually its home market, the UK, which has contributed to its disastrous share price performance. I think the tale of Tesco highlights some important areas of danger that investors often fall foul of, particularly relying on financial metrics while giving too little thought to qualitative factors of a company and how it does business.

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The dangers of retail

Asset prices throughout the western world, from property to shares, are at all time highs and show no signs of slowing. Quantitative easing and low interest rates, rather than encouraging new investment and entrepreneurship are simply fuelling price increases in existing assets. Now is the time to be fearful in my opinion, however that doesn’t stop me trying to find great investments even if it is that much harder at the moment.

I recently ran a stock screen of US companies to try and find some interesting prospects. The results were very interesting so I wanted to share them with you, and highlight some possible value traps I noticed going through the list, particularly retailers, along with some stories of my experiences investing in them.

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