Warren Buffett admits to $873 million mistake

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Warren Buffett

Warren Buffett is famous for his stock-picking ability, but he also puts a substantial amount of Berkshire Hathaway's money in bonds.

Those transactions don't get a lot of attention. Unlike the contents of its stock portfolio that must be filed with the SEC four times a year, Berkshire doesn't have to publicly disclose its debt holdings.

In his letter to shareholders released Saturday, however, Buffett admitted to a money-losing bond buy involving Energy Future Holdings.

(Read more: Buffett's Berkshire slammed by S&P in 2013)

"Most of you have never heard" of the company, he wrote. "Consider yourselves lucky; I certainly wish I hadn't."

Buffett said he decided to buy about $2 billion of EFH's debt when it was created in 2007 as part of a leveraged buyout of Texas electric utility assets.

He made that decision "without consulting with (business partner) Charlie (Munger). That was a big mistake."

Buffett wrote that unless there's a big increase in natural gas prices, the company will "almost certainly" file for bankruptcy protection this year.

Last year, Berkshire sold the bonds for $259 million. Adding back the $837 million received in cash interest, Buffett's decision produced a pre-tax loss of $873 million.

"Next time," Buffett promised, "I'll call Charlie."

—By CNBC's Alex Crippen. Follow him on Twitter: @alexcrippen