Warren Buffett is famous for timeless investing wisdom, but even the most successful investors make mistakes. One of Buffett’s most talked-about errors taught him — and the investing world — important lessons about acquisitions, capital allocation, and the value of picking businesses that can withstand change.
The acquisition that went wrong
In the early 1990s, Berkshire Hathaway acquired a well-known American shoe manufacturer. Buffett paid roughly $433 million in Berkshire stock for the company. At the time the deal seemed reasonable: a recognizable brand, steady sales and a familiar industry. Over time it became clear the business faced structural headwinds that the purchase price — and the form of payment — did not reflect.
Why the company deteriorated
- Global competition: The shoe business shifted quickly toward low-cost overseas manufacturing. U.S. production struggled to compete on price.
- Thin pricing power: Shoes became a largely commodity-driven market with limited ability to raise margins through brand loyalty or pricing.
- Changing industry dynamics: The company did not possess a durable competitive advantage that could protect profits against structural change.
Where Buffett says he went wrong
Buffett later described the deal as his worst investment. Two connected mistakes stand out:
- Paying with company stock: Using Berkshire shares as acquisition currency meant surrendering future upside. When you pay with your own stock, you give away a slice of an asset that may appreciate dramatically.
- Underestimating structural risk: He bought into a business whose economics were vulnerable to forces beyond management’s control — primarily cheaper imports and a shrinking domestic manufacturing base.
Lessons that reshaped his approach
Buffett’s admission became a practical guide for better capital allocation. Key takeaways include:
- Don’t pay too high a price: Even a good business can be a bad investment if you overpay.
- Be cautious using stock as currency: Stock should be preserved for strategic flexibility unless the acquisition clearly enhances long-term value.
- Focus on durable advantages: Prefer businesses with strong brands, pricing power, or other moats that protect long-term profits.
- Respect structural change: Industries that face secular decline require extra scrutiny and skepticism.
- Stick to your circle of competence: Make sure you truly understand the long-term economics of the business you buy.
How that lesson shows up today
After that experience Buffett became more disciplined about deal structure and business selection. He favored companies with clear, sustainable cash generation and pricing power. He also learned to manage capital more conservatively — preserving stock when it creates more value kept Berkshire flexible for larger, higher-conviction opportunities.
Why the story matters for investors
The episode is a reminder that even seasoned investors can misjudge industry trends and the cost of an acquisition. For individual investors and managers alike, the practical lessons are straightforward: protect your capital, value long-term economics over short-term metrics, and avoid paying dearly for a business that might lose its competitive footing.
Buffett’s willingness to admit a mistake is also instructive. Successful investing isn’t about never being wrong — it’s about learning, adapting, and changing behavior so a single error doesn’t become a repeated pattern.