There is one very important thing to get used to if you decide to be an active investor: you will make mistakes. It’s inevitable – even some of the best investors in the world do. This is why it is worth noting that investors who followed the leadership of Warren Buffett Characteristics of Growth Seritage (NYSE: SRG) Three years ago they have now lost about 70% of their capital. Here’s what happened.
rough start
Seritage Growth was created by the struggling retailer Sears Holdings. The REIT was originally a way for Sears Holdings to sell some of its properties in an effort to raise the cash it needed for its redemption efforts. This meant that, from the start of its life, Seritage was also a story of transformation, as its largest tenants struggled with Sears and Kmart stores.
Image source: Getty Images.
The goal was to get Seritage out from the bottom of these nameplates by redeveloping its property and leasing it out to other, more desirable tenants. Given enough time, this could actually have been a good plan. In fact, when the REIT refurbished its assets, it was able to increase the rents it charged as it brought in new tenants.
Warren Buffett liked the story so much that he actually bought shares for his personal portfolio. However, redeveloping a large portfolio of assets takes time and money. And he turned into a race, because Sears Holdings’ transformation didn’t go well. In fact, I eventually went bankrupt.
Berkshire to the rescue
Shortly before, Sears sought court protection from creditors, but Buffett Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) I stepped in and made a loan to Siritaj. That essentially gave REIT a lifeline it could draw on as Sears and Kmart stores became overburdened. After taking this capital infusion, Siritage was principally indebted to Berkshire Hathaway.
To be fair, Berkshire Hathaway is a fairly respectable business partner, so that’s not a bad thing. But the business environment changed again and rapidly in 2020 as the coronavirus pandemic spreads around the world. Suddenly retail assets are becoming more and more difficult to deal with as consumers quickly turn towards online purchases. The assets owned by Siritaj no longer looked attractive, and the prospects for finding new tenants dwindled.
The stock fell, and unlike many other REITs, the stock simply did not recover. It’s still down 70% over the past three years, which means an investor would have lost about $7,000 on a $10,000 investment.
SRG data by YCharts
On March 1, the company said it was studying strategic alternatives, including selling the company. This effectively means that it has abandoned turnaround efforts and is looking to salvage some value for investors. The stock rose on the news, but not enough to offset losses since the pandemic.
Even big investors make mistakes
Seritage is just an approximation for Warren Buffett and Berkshire Hathaway, so it will have very little effect on them and their performance in the long run. But for individual investors, the pain can be even more significant.
This is not to say that Siritaj’s story was not plausible, because it had advantages. In fact, she was attractive. Things have only changed and what was once a powerful story turns into an ugly story as the company loses the race between redevelopment and outside forces (specifically, the demise of Sears Holdings and a global pandemic).
There are three takeaways here. First, don’t blindly follow any investor, even those of Wall Street; They make mistakes just like us. Second, even good ideas can lead to bad results; It’s just the randomness of life. and third, give yourself room for error, both emotionally and financially; Diversification is important for a reason. You’re not quite as perfect as the rest of the human species, and that’s okay.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
