One sells, one buys. But which master investor has made the correct decision?
They do say it takes both a buyer and a seller to make a market.
Well, this week it's transpired that Neil Woodford has effectively sold his shares in Tesco (LSE: TSCO) to Warren Buffett.
Now, I don't know about you, but I can't recall any other time when two such master investors were apparently at the opposite ends of the same trade. In sporting terms, the transaction might even be the equivalent of Ali-Frazier, Borg-McEnroe or Senna-Prost. Two greats, but only one can come out on top -- at least with this particular Tesco decision!
For us ordinary investors, it will be fascinating to discover which of these super stock-pickers has made the correct portfolio move.
Tesco warning
This bout of guru Tesco trading was, of course, triggered by the supermarket admitting near-term profit growth would be minimal and the shares slumping by 16%.
As you'd expect, the debate about buying and selling Tesco soon raged on the Fool. Bulls cited Tesco's market leadership, tip-top dividend record and lowly valuation, while the bears responded with poor customer service, recent management changes, plus how J Sainsbury (LSE: SBRY) fell from grace during the 1990s and then struggled to recapture its former glory.
According to an interview with Mark Dampier of Hargreaves Lansdown (LSE: HL), Mr Woodford said he was able to offload his Tesco shares quickly because Mr Buffett was buying. Explaining his sale, Mr Woodford believed the supermarket currently "has too many plates spinning" and reckoned restructuring its UK business would be difficult due to heightened sector competition.
Woodford sells...
My research indicates Mr Woodford owned about 167 million Tesco shares before the sale, which at the time represented about 3.4% of his market-thumping Invesco Perpetual Income and High Income funds. However, Mr Woodford's 2011 reports did show him selling some Tesco shares last year and reducing his position down from 4%.
Looking further back, it seems Mr Woodford acquired most of his Tesco stake during the first half of 2004, when the price traded between 237p and 270p and averaged 252p. Including a possible 81p per share of dividends collected on the way, I reckon Mr Woodford may have enjoyed a possible 59% total return on his main Tesco investment (assuming he bought at 252p, received dividends of 81p and sold at a post-warning price of 320p).
...while Buffett buys
On the other hand, Mr Buffett has now accumulated 508 million Tesco shares, which represent about 5% of the supermarket and roughly 1.5% of the common-stock portfolio within his Berkshire Hathaway (NYSE: BRK-B.US) conglomerate.
Mr Buffett was a little slower than Mr Woodford to latch on to Tesco -- the American billionaire first disclosed a sizeable interest during 2006, and I've deduced from Mr Buffett's reports that he may initially have paid 333p per share. Including 71p per share of possible dividends received as well, it seems he's currently made a 26% total return -- at least on his maiden purchase of 230 million Tesco shares.
So what now?
So who will eventually be seen as the wiser Tesco investor? I must admit, it is very difficult to say.
Certainly, Mr Woodford and Mr Buffett have similar 'value' styles, with both men avoiding the late 1990s tech bubble to instead buy old-economy businesses such as tobacco (Woodford) and utilities (Buffett). Indeed, since the turn of the century, both Mr Woodford and Mr Buffett have trounced the 'lost decade', with the former's Invesco funds generating a 180% total return and the latter's Berkshire conglomerate delivering 114% (or 119% in sterling terms).
But perhaps Mr Woodford does have the better track record with British shares. As most Buffettologists know, the American billionaire has made only a handful of non-US stock investments, with British purchases before Tesco limited to just Guinness -- now Diageo (LSE: DGE) -- and Allied Domecq in the 1990s. What's more, I do wonder if Mr Woodford's local knowledge -- and the opportunity to 'scuttlebutt' the supermarket's service -- puts him at an advantage over his Nebraska-based rival.
Still, the final verdict on this Tesco transaction will take some time to play out and may never really become clear cut. Indeed, Mr Buffett's Tesco shares could do well from here, but Mr Woodford may have recycled the proceeds into an even stronger performer! For what it's worth, I'm predicting this sort of 'score draw' between the two super investors, though if I had to side with one of the gurus, I'd have to go with Mr Woodford and the possibility that Tesco's fresh management may take a while to reinvigorate the retailer.
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> The Motley Fool owns shares in Tesco.
