Billionaire investor Warren Buffett has made some brilliant stock market moves over the decades. But he has also made some pretty bad ones.
His company Berkshire Hathaway announced over the weekend that it had written down the value of its investment a decade ago in Kraft Heinz by $3.8bn.
That sounds like a very costly mistake. In reality, the picture is a bit more complicated. Berkshire has received over $6bn in dividends since investing in Kraft Heinz, for example.
Still, investing in the baked beans giant was not one of the best moves Warren Buffet has made, by a long shot.
Admitting mistakes can be painful but powerful
In fact, something that sets Buffett apart from many investors is his willingness to admit – both to himself and publicly – what he sees as his mistakes. That can make him a better investor, in my view, despite the potential for embarrassment.
In his 2007 shareholders’ letter, Buffett helpfully distinguished between what he described as mistakes of omission (great deals he let slip through his fingers) and those of commission (bad deals he made).
One bad mistake of commission he highlighted was buying shoe business Dexter in 1993 for $433 million in Berkshire stock.
Warren Buffett looked back on that like this: What I had assessed as durable competitive advantage vanished within a few years. But that’s just the beginning: By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business – one now valued at $220 billion – to buy a worthless business.“
The difference between paying for a deal in stock and in cash is one I pay attention to when businesses in which I own a stake make a takeover bid. I do not see one approach as necessarily better than the other – the question, as Buffett points out, is what is a company giving away and what does it get in return?
Looking for a moat
I also find interesting Buffett’s observation that a key problem here was the fairly quick disappearance of what he had seen as a durable competitive advantage. He sometimes refers to that as a “moat”.
Dexter lost its competitive advantage as overseas factories undercut US manufacturing costs significantly. That got me thinking about a US footwear stock I currently own: Crocs (NASDAQ: CROX).
It has long since learned how to manage a complex global supply chain in a way that Dexter never did. Then again, tariffs and rising international freight costs are both potential risks that arise from such a supply chain in 2025.
Does Crocs have a moat that puts clear blue water between it and rivals, though? While plastic sandals may seem generic, in fact Crocs’ patented clog design is a strong competitive advantage, in my opinion.
It has also used its vast scale to figure out how to optimise its manufacturing strategy in a way that enables it to keep costs low enough to make the brand accessible for consumers, but still pricey enough to turn a handy profit.
I do think Crocs has a durable competitive advantage and have no plans to sell my shares. Still, Warren Buffett once thought that about Dexter!
