Warren Buffett’s $17 Billion Mistake
“I gave away 1.6% of a wonderful business..."
Good morning, everyone.
This week’s newsletter includes: a rare L for the godfather of investing.
Understanding The True Cost
Warren Buffett built an investing empire – but one deal humbled him, destroyed a company and cost $17 billion in lost wealth…
By the early 1990s, Warren Buffett looked unstoppable.
For nearly 30 years he had been beating markets. And with Charlie Munger by his side, Berkshire Hathaway had been transformed from a dying textile mill into one of the most powerful investment machines in history.
In 1993, Warren made what seemed like another masterstroke:
He bought Dexter Shoe.
Dexter was a company admired by investors the world over due to its strong margins and loyal customers. Warren genuinely believed it had “durable competitive advantage”.
But then, a devastating mistake…
Warren didn’t pay cash.
Instead of being paid in cash, the owners of Dexter Shoe wanted to be paid exclusively in shares of Berkshire Hathaway: 25,203 Class A shares - worth about $433 million at the time.
Slowly, cracks started to appear at Dexter.
Overseas competition crushed their domestic sales model. Margins evaporated. The brand collapsed and the company was worth zero. Unfortunately for Warren, the sting in the tail was much worse than just a dud company.
It was how he bought the company.
Those 25,203 Berkshire Hathaway shares he traded - carved out of the crown jewel he spent decades building - would now be worth well over $17 billion...
Warren was speechless: “I gave away 1.6% of a wonderful business…for a worthless business!”
That single mistake cost him more than any market downturn or bad stock pick. A rare and humbling lesson for the world’s greatest investor.
After making the biggest mistake of his career, Warren outlined a new perspective on life and business in a famous shareholder letter:
“Don’t risk what you have and need, for what you don’t have and don’t need.”
Recommendation’s
A fantastic clip from the 2002 Berkshire Hathaway Annual Shareholder Meeting when an audience member asked Warren about Dexter...
Or if you prefer to hear Warren’s views on friendship, and how to know who to trust - check out his answer from the 2024 Annual Meeting.
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Joseph Cass