The One Investment Buffett Wishes He NEVER Made

JC5m...7DAB

23 Mar 2025

Warren Buffett, often referred to as the "Oracle of Omaha," is widely regarded as one of the greatest investors of all time. His disciplined, value-based investment approach has made him and his company, Berkshire Hathaway, one of the most successful financial entities in history.

However, despite his legendary status, even Buffett is not immune to making mistakes. In fact, he has openly admitted to certain missteps throughout his investing career. Among them, one stands out as perhaps the worst investment he ever made: Dexter Shoe Company.

In this article, we will delve deep into this infamous investment blunder, exploring why Buffett invested in Dexter Shoe, what went wrong, and the lessons investors can learn from this costly mistake.

Buffett’s Investment Philosophy: A Brief Overview

Before we analyze his mistake, it is important to understand Buffett’s general approach to investing. He has long been a proponent of value investing, a strategy that involves buying undervalued companies with strong fundamentals and holding them for the long term. His primary criteria when evaluating an investment include:

Strong Competitive Advantage (Moat): Buffett prefers businesses with a durable competitive edge, which allows them to maintain profitability and fend off competition.
Competent and Honest Management: He believes that a company’s leadership plays a crucial role in its long-term success.
Consistent Earnings and Strong Cash Flow: Buffett avoids businesses that are highly speculative or dependent on unpredictable market conditions.
Fair Valuation: Even the best businesses can be bad investments if bought at the wrong price.
Longevity and Stability: Companies with a long history of stable performance are preferred over flashy but risky newcomers.

Using this framework, Buffett has built an investment empire, successfully acquiring businesses like Coca-Cola, American Express, and Apple. However, not all of his decisions have followed this philosophy perfectly, as the case of Dexter Shoe illustrates.

The Dexter Shoe Company Investment: A Costly Mistake

Background: Why Buffett Invested in Dexter Shoe

In 1993, Berkshire Hathaway acquired Dexter Shoe Company, a Maine-based footwear manufacturer, for approximately $433 million. Unlike most of Buffett’s cash-based purchases, he used Berkshire Hathaway stock to finance the acquisition, believing that Dexter Shoe was a high-quality business with strong future prospects.
At the time, Dexter Shoe was a well-established brand known for producing durable, high-quality shoes made in the United States. It had a loyal customer base and a reputation for craftsmanship. Buffett believed that the company’s long-standing success indicated a strong economic moat that would allow it to remain profitable for years to come.
However, this assumption turned out to be tragically incorrect.

Why It Was a Mistake

Almost immediately after the acquisition, cheap imported shoes from overseas manufacturers flooded the market, significantly undercutting Dexter’s pricing. American-made shoes became increasingly uncompetitive as foreign manufacturers, particularly from China and Southeast Asia, offered similar products at a fraction of the cost.
Despite Dexter's established brand name, it simply could not compete against these lower-cost imports. Within a few years, Dexter’s sales plummeted, forcing it to close down domestic factories and outsource production—completely eroding its original value proposition.
Buffett later admitted that he failed to recognize the vulnerability of Dexter Shoe’s business model. The company lacked a sustainable competitive advantage, or moat, which meant it could not withstand global economic pressures.

The Cost of the Mistake

The financial consequences of this investment were staggering. Because Buffett used Berkshire Hathaway stock—which has since appreciated tremendously—the actual loss was worth billions of dollars. As he later wrote in a shareholder letter:

"To date, Dexter is the worst deal that I’ve made. But I’ll make more mistakes in the future – you can bet on that."

Had Buffett used cash instead of stock, the damage would have been far less severe. But since Berkshire’s shares skyrocketed in value over the years, what was initially a $433 million mistake ultimately ballooned into a multi-billion dollar loss in potential wealth.

Lessons for Investors: What We Can Learn from Buffett’s Blunder

1. A Brand Alone is Not a Moat

Buffett believed that Dexter’s strong brand and history in the footwear industry provided it with a sustainable competitive edge. However, he underestimated how quickly foreign competitors could erode the company’s advantage by offering similar products at much lower prices.
For modern investors, this highlights the importance of evaluating whether a company truly has a competitive moat or if its success can be easily replicated by others.

2. Industry Disruptions Can Destroy Even Good Businesses

One of Buffett’s biggest mistakes with Dexter Shoe was failing to recognize the rapid shift in the footwear industry. Globalization and manufacturing outsourcing were accelerating at an unprecedented pace, making it difficult for U.S.-based shoe manufacturers to remain competitive.
This serves as a cautionary tale for investors: always consider external factors that could disrupt an industry. Technological advancements, regulatory changes, and economic shifts can render even successful companies obsolete.

3. Beware of Using Stock for Acquisitions

Perhaps the most painful lesson from the Dexter Shoe debacle was the way Buffett financed the deal. Instead of using cash, he paid for Dexter with Berkshire Hathaway shares, which later grew exponentially in value. Had he used cash instead, the loss would have been far less damaging.
For investors, this underscores the importance of understanding the true value of what you’re giving up in a transaction. Sometimes, paying with company stock might seem attractive, but if that stock has strong long-term potential, it might be better to hold onto it.

4. Even the Best Investors Make Mistakes

One of Buffett’s greatest strengths is his willingness to admit mistakes and learn from them. Despite his decades of experience, even he fell into the trap of overestimating a company’s moat and underestimating industry disruption.
This is a key lesson for investors of all levels: nobody is infallible. What separates great investors from average ones is their ability to recognize mistakes, acknowledge them, and adjust their strategies accordingly.

5. Acknowledge When It’s Time to Cut Losses

Dexter Shoe struggled for years, and by the time it was clear that the business had no future, it was too late to recover the losses. Sometimes, stubbornness in holding onto a bad investment can be more damaging than admitting failure early and moving on.
Investors should regularly reevaluate their portfolios and be willing to cut losses when the original investment thesis no longer holds up.

Conclusion: Buffett’s Biggest Regret, But a Valuable Lesson

Although Warren Buffett has made some of the most successful investments in history, Dexter Shoe remains his biggest regret. The failure to anticipate market changes, the mistaken belief in the company’s competitive moat, and the decision to finance the purchase with Berkshire Hathaway stock all combined to make this one of his worst decisions ever.

However, rather than dwell on the mistake, Buffett used it as a learning experience—one that he has shared openly with the public. This transparency and willingness to acknowledge failure are part of what makes him such a respected figure in the investment world.
For individual investors, the Dexter Shoe debacle offers critical lessons in evaluating competitive advantages, recognizing industry disruptions, being cautious with stock-based acquisitions, and knowing when to cut losses.

If there’s one thing we can take away from Buffett’s experience, it’s that even the greatest investors make mistakes—but the key is learning from them and continuously improving.