The “Oracle of Omaha” might have an unmatched investment record, but that doesn’t mean he hasn’t made a few mistakes along the way. From losing billions by passing on stock options to investing in companies destined to fail, here are seven of Warren Buffett’s biggest money mistakes.
I know it’s hard to believe, but one of Warren Buffett’s biggest investment blunders was the purchase of Berkshire Hathaway. In the early 1960s Berkshire Hathaway was a struggling textile mill that was unable to compete with cheap foreign suppliers. Even though he believed it would fail, Buffett owned stock in the company because he thought the assets in the business made it a good investment, according to CNBC.
In 1964, Seabury Stanton, who ran Berkshire Hathaway, offered to buy Buffett’s stock at $11.50 a share, but when the offer finally came through, it was for only $11.375 a share. According to some sources, Buffett became enraged and set out to buy even more shares of Berkshire Hathaway stock and fire Stanton. He managed to do just that, but later admitted to CNBC he overpaid for the company calling it “the dumbest stock I ever bought.” He told Squawk Box that his holding company (which would probably operate under a different name) would be “worth twice as much as it is now” if he had just bought a good insurance company instead of putting so much money into a dying textile business.
In October 2014, Warren Buffett told Squawk Box, “With Tesco, we definitely made a mistake. I made a mistake on that one more than anybody else made a mistake …That was a huge mistake by me.”
So, what does that mean exactly? In 2006, Berkshire Hathaway became Tesco’s third-largest investor when it purchased over 300 million shares for $1.699 billion.
In early 2014, company stock started to plunge after the U.K. supermarket retailer said it overstated its first-quarter earnings forecast by $400 million. Buffett, who is famous for his “buy and hold” mentality, stuck with his initial investment, which ended up losing more than $700 million toward the end of the year, according to CNBC.
Dexter Shoe Company
In 1993, Warren Buffett acquired Dexter Shoe Company with 1.6 percent of Berkshire Hathaway’s stock, which was worth $433 million. Dexter was earning $40 million per year pre-tax, but soon ran into competitive pressure, suffered from dwindling sales and ended shoe production in the U.S. and Puerto Rico in 2001, reports Reuters.
In a 2008 letter to shareholders, Buffett said Dexter Shoe Company was one of his worst investments ever — the stock Buffett used to purchase the company is now worth $5 billion and Dexter Shoe Company is out of business.
“To date, Dexter is the worst deal that I’ve made,” Buffett said according to Reuters. “But I’ll make more mistakes in the future — you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: ‘I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.’”
Airlines make tough investments: The industry is highly competitive; it requires huge investment capital and profit margins are slim. According to The Street, Buffett said, “Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results. It’s been a death trap for investors.”
But that didn’t stop Warren Buffett from trying. In 1989, he acquired $350 million of preferred stock in US Airways to protect the company against a hostile takeover from hedge fund manager Michael Steinhardt, reports Forbes. Soon after, US Airways was headed for trouble as Southwest Airlines jumped into the game. Buffett said his investment was protected, but that was before Southwest showed up with 8-cent seat costs.”
US Airways couldn’t compete, as they were in the 12-cent range. Forbes reports Buffett cashed out his stocks as soon as he was able and ended up breaking even on the deal.
Salomon Brothers Inc.
Analysts often point to Salomon Brothers as one of Warren Buffett’s worst investments. A series of scandals in the early 1990s nearly forced Salomon into bankruptcy, which prompted Buffett to launch an emergency takeover of the financial services firm of which he had a $700 million stake, reports Reuters.
In a 1991 hearing in front of the House committee on Energy & Commerce he said, “Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless,” reports Business Insider. In 1997 Travelers acquired Salomon Brothers for $9 billion and Warren Buffett walked away with $1.7 billion.
Most people focus on Warren Buffett’s stock-picking talent, but he also has a substantial amount of money invested in bonds, reports CNBC. In a letter to shareholders released in February 2014, Buffett admitted he lost nearly a billion dollars in a bond buy involving Energy Future Holdings. He wrote, “Most of you have never heard of the company. Consider yourselves lucky; I certainly wish I hadn’t.”
When Buffett purchased $2 billion of Energy Future Holding’s debt as part of a leveraged buyout of Texas electric utility assets, he made a huge decision “… without consulting [business partner] Charlie [Munger]. That was a big mistake.”
In 2014, Buffett sold the bonds for $259 million, which resulted in a pre-tax loss of $873 million. In his letter he also said, “Next time I’ll call Charlie.”