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Through the years, Warren Buffett has repeatedly referred to as one deal his worst funding ever: the 1993 buy of Dexter Shoe Firm for $443 million price of Berkshire Hathaway Inc. (BRK.A) inventory. As of February 12, 2025, those self same shares can be price $17.87 billion—a staggering loss that Buffett has mentioned “deserves a spot within the Guinness E book of World Data.”
Whereas Berkshire Hathaway shares soared in worth during the last three a long time, these for Dexter Shoe collapsed, making it not solely a nasty funding however what Buffett says was a “monumentally silly choice” in how the deal was structured. Under, we take you thru why.
Key Takeaways
- Buffett’s Dexter Shoe Firm buy demonstrates how paying with firm inventory as an alternative of money can enlarge losses dramatically over time—the $443 million in Berkshire shares he traded in 1993 can be price about $17.87 billion right this moment.
- The funding failed as a result of Buffett misinterpret Dexter’s aggressive benefit, not realizing that abroad competitors would rapidly erode the corporate’s market place.
- Paradoxically, the size of the loss is measured by Berkshire Hathaway’s unimaginable success—which was constructed on Buffett’s basic capability to keep away from such errors and determine these companies with sustainable aggressive benefits.
What Went Flawed With Dexter Shoe
When Buffett purchased Dexter Shoe Firm in 1993, the Maine-based firm appeared to have every part the famed worth investor seems to be for: It was worthwhile, well-managed, and appeared to have what Buffett calls a “moat,” a sustainable benefit over rivals. American-made sneakers, notably Dexter’s high-quality informal and costume footwear, have been additionally getting premium costs and had buyer loyalty on the time.
Mistake No. 1: Misreading the Aggressive Panorama
Buffett had missed a vital shift taking place within the trade. International factories, notably in China, have been quickly enhancing their high quality whereas maintaining their labor prices a lot decrease than their American friends. Inside only a few years, abroad opponents started flooding the U.S. market with related sneakers at a lot decrease costs.
“What I had assessed as a sturdy aggressive benefit vanished inside a number of years,” Buffett wrote in his 2007 letter to shareholders. By 2001, Dexter had closed its final Maine manufacturing facility, and the model was finally folded into H.H. Brown, one other Berkshire-owned shoe firm.
Mistake No. 2: Paying with Berkshire Inventory
Making the acquisition was solely half the issue. Buffett’s greater error was paying for Dexter with Berkshire Hathaway inventory as an alternative of money. The 25,203 shares he used to purchase Dexter have been price $433 million in 1993 (or about $949.20 million right this moment)—however those self same shares can be price $17.87 billion right this moment.
The lesson to take from this? “Too usually CEOs appear blind to an elementary actuality: The intrinsic worth of the shares you give in an acquisition should not be higher than the intrinsic worth of the enterprise you obtain,” Buffett mentioned.
In late 2024, the native paper the place Dexter Shoe was situated caught up with these benefiting from proprietor Harold Alfond’s sale. Even after splitting her father’s good points from the take care of three brothers, Susan Alfond of Scarborough, Maine, nonetheless had sufficient to make her the wealthiest individual within the state, about $3.3 billion, in accordance with Forbes.
The Backside Line
Warren Buffett says he violated two of his core ideas within the Dexter Shoe deal: by no means pay with undervalued inventory and at all times guarantee a enterprise has a sustainable aggressive benefit. Whereas Berkshire Hathaway’s subsequent success has made this error look far worse in greenback phrases, BRK.A’s share worth is simply what it’s right this moment as a result of Buffett has been disciplined in shopping for what he calls wonderful companies at truthful costs, not truthful companies at wonderful costs. “One of the best factor that occurs to us is when an excellent firm will get into short-term bother,” Buffett has mentioned repeatedly.
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