Warren Buffett Once Made a Company Acquisition so Horrible He Ended up Losing Billions
These days Warren Buffett’s reputation as one of the world’s most successful investors seems to be unchallenged. But flashback to a few decades ago, and we’re not sure whether we can still say the same.
As it turns out, even the ‘Oracle of Omaha’ isn’t immune to making bad calls despite his otherwise pristine track record when it comes to investing in winning companies. Here’s a throwback to Buffett’s worst mistake yet.
Most Gruesome Mistake
Back in 1993, the Berkshire Hathaway CEO decided to buy Dexter Shoe, a Maine-based shoemaker, in exchange for shares in his holding company.
The transaction saw the billionaire letting go of 25,203 Class A shares in Berkshire Hathaway that was worth $433 million at the time. Today, though, those same shares would’ve been worth a jaw-dropping $8.7 billion.
Unfortunately, Buffett’s positive outlook about the shoe company didn’t pan out. The billionaire initially said that acquiring Dexter Shoe with Berkshire shares was a sound decision because the shoemaker was a ‘business jewel’.
He even described it as one of the best-managed companies he has ever seen in his lifetime. However, Buffett did recognize that Dexter Shoe would be squaring up against the importation of cheap shoes from other countries.
At first confident that Berkshire’s shoe investments would be able to compete, the investor changed his tune a couple of years later. By 1999, the company’s profits from Dexter and H.H. Brown fell to just $17 million from $85 million in 1994.
Speaking to his shareholders, Buffett said that it has become more difficult for American producers to compete with countries abroad, which offered cheaper labor. Thus, he also resorted to sourcing shoes internationally.
Although his efforts would allow Dexter to survive for the coming years, he‘s already considered the decision to acquire it as one of his worst mistakes yet.
In a 2000 letter to Berkshire shareholders, Buffett said that he ‘clearly made a mistake’ when he used company shares to pay for Dexter. He was more optimistic in the following years’ letters though as shoe profits rebounded in 2002.
However, the billionaire spoke about his regret for buying Dexter in 2007. He bemoaned that he gave away 1.6% of a wonderful business to buy a ‘worthless’ one.
Buffett even described Dexter’s downfall as something that deserves a spot in the Guinness Book of World Records.
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