Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway Inc., acknowledged one of his biggest financial blunders in buying Dexter Shoe Co. in 1993. Dexter, a Maine-based shoemaker, was initially perceived as a thriving business. Buffett remarked in his 2014 letter to shareholders that he had made many mistakes but one stood out as being particularly bad.
Buffett wrote, “Even with Charlie's blueprint, I have made plenty of mistakes since Waumbec. 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.”
However, the investment quickly soured as Dexter’s competitive strengths diminished because of foreign competition, a factor Buffett said he failed to foresee.
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By 1999, around 93% of shoes purchased in the U.S. were imported, primarily because of lower labor costs abroad. Despite initial profitability and strong management, Dexter could not maintain its competitive edge in the face of these market shifts. Efforts to revitalize the company, including sourcing more shoes internationally and closing some U.S. plants, failed. As a result, the company’s value plummeted to zero.
In his letter, Buffett highlighted the enormity of this misstep, stating, “As a financial disaster, this one deserves a spot in "The Guinness Book of World Records.” Buffett’s error was compounded by the fact that the acquisition was made using Berkshire Hathaway stock rather than cash.
“I gave Berkshire stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7 billion,” he wrote. This decision significantly amplified the cost of the mistake. As of 2024, the value of the 25,203 Class A shares of Berkshire Hathaway, used to acquire Dexter Shoe in 1993, is approximately $14.39 billion.
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In the 2007 letter to shareholders Buffett wrote, “To date, Dexter is the worst deal that I’ve made.” Embracing the reality of investment decisions, he further noted his openness to future errors, saying, “But I’ll make more mistakes in the future — you can bet on that.” With a touch of humor, Buffett likened his experiences to a line from a Bobby Bare country song: “I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.”
The failure of Dexter Shoe not only resulted in a financial loss for Berkshire Hathaway but also had significant impacts on the local community. In his 2015 letter, Buffett acknowledged the wider consequences, saying, “Our once-prosperous Dexter operation folded, putting 1,600 employees in a small Maine town out of work. Many were past the point in life at which they could learn another trade. We lost our entire investment, which we could afford, but many workers lost a livelihood they could not replace.”
Buffett’s reflections on the Dexter Shoe acquisition serve as a lesson in the risks of overlooking market dynamics and the importance of evaluating the intrinsic value of a business. He emphasized that similar errors occurred when he used Berkshire shares to purchase businesses that only achieved lackluster earnings, stating, “Mistakes of that kind are deadly.”
He acknowledges that even with his extensive experience, he is not immune to misjudgments and is bound to make mistakes again. Buffett’s attitude toward his investment failures is not one of regret but rather of valuable learning experiences that have contributed to his overall success and investment philosophy.
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