Why Warren Buffett Called This Investment His ‘Most Gruesome’ Mistake — ‘Deserves a Spot in the Guinness Book’
Legendary investor and former Berkshire Hathaway (BRK.A) (BRK.B) Warren Buffett once famously described his Dexter Shoe acquisition as a “gruesome mistake,” though not necessarily for the reason most <a href="https://bitcomme.com/palantir-ceo-drops-11-word-bombshell-for-stock-market–investors/” title=”Palantir CEO drops 11-word bombshell for stock market investors”>investors might assume.
But for modern CEOs, and the investors who watch their maneuvers, the decision now stands as one of the most instructive lessons in corporate finance history. At its core, the Dexter Shoe acquisition illustrates the catastrophic cost of using an appreciating currency—Berkshire Hathaway stock—to purchase a depreciating asset.
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In 1993, Berkshire acquired Dexter Shoe Company for approximately $433 million, which it paid entirely in stock, roughly 25,203 Class A equivalent shares at the time. The business itself ultimately proved worthless, as cheap foreign imports decimated Dexter’s competitive position, rendering the company’s domestic manufacturing model obsolete within a decade.
The true magnitude of the error, however, extends far beyond the initial purchase price. Because Buffett paid with Berkshire stock rather than cash, the real cost of the deal compounded relentlessly as Berkshire’s share price appreciated over the following decades.
Those shares given to Dexter’s sellers would be worth tens of billions of dollars today, given that Berkshire Hathaway Class A shares now trade above $780,000 each. The lesson is that when you use an undervalued or appreciating stock as acquisition currency, any misjudgment about the target’s value is amplified exponentially over time.
Buffett himself has repeatedly acknowledged this mistake in his annual letters to shareholders, noting that he gave away a piece of a wonderful business to acquire something that turned out to be worthless.
“I have made plenty of mistakes,” Buffett wrote in his 2014 letter to Berkshire shareholders. “…The most gruesome was Dexter Shoe. When we purchased the company in 1993, it had a terrific record and in no way looked to me like a cigar butt. Its competitive strengths, however, were soon to evaporate because of foreign competition. And I simply didn’t see that coming.”
