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Legendary investor and former Berkshire Hathaway (BRK.A) (BRK.B) Warren Buffett once famously described his Dexter Shoe acquisition as a “gruesome mistake,” though not necessarily for the reason most investors might assume.
But for modern CEOs, and the investors who watch their maneuvers, the decision now stands as one of the most instructive lessons in corporate finance history. At its core, the Dexter Shoe acquisition illustrates the catastrophic cost of using an appreciating currency—Berkshire Hathaway stock—to purchase a depreciating asset.
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In 1993, Berkshire acquired Dexter Shoe Company for approximately $433 million, which it paid entirely in stock, roughly 25,203 Class A equivalent shares at the time. The business itself ultimately proved worthless, as cheap foreign imports decimated Dexter’s competitive position, rendering the company’s domestic manufacturing model obsolete within a decade.
The true magnitude of the error, however, extends far beyond the initial purchase price. Because Buffett paid with Berkshire stock rather than cash, the real cost of the deal compounded relentlessly as Berkshire’s share price appreciated over the following decades.
Those shares given to Dexter’s sellers would be worth tens of billions of dollars today, given that Berkshire Hathaway Class A shares now trade above $780,000 each. The lesson is that when you use an undervalued or appreciating stock as acquisition currency, any misjudgment about the target’s value is amplified exponentially over time.
Buffett himself has repeatedly acknowledged this mistake in his annual letters to shareholders, noting that he gave away a piece of a wonderful business to acquire something that turned out to be worthless.
“I have made plenty of mistakes,” Buffett wrote in his 2014 letter to Berkshire shareholders. “…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. Its competitive strengths, however, were soon to evaporate because of foreign competition. And I simply didn’t see that coming.”
Buffett continued on, writing that the $433 million cost of the acquisition “doesn’t come close to recording the magnitude of my error”:
The fact is that 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. As a financial disaster, this one deserves a spot in the Guinness Book of World Records.
Several of my subsequent errors also involved the use of Berkshire shares to purchase businesses whose earnings were destined to simply limp along. Mistakes of that kind are deadly. Trading shares of a wonderful business– which Berkshire most certainly is– for ownership of a so-so business irreparably destroys value.
We’ve also suffered financially when this mistake has been committed by companies whose shares Berkshire has owned (with the errors sometimes occurring while I was serving as a director). Too often CEOs seem blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.
This experience reinforced a principle that has guided Berkshire’s capital allocation philosophy ever since: the immense importance of being disciplined about the form of payment in acquisitions.
Greg Abel, Buffett’s successor who took over as Berkshire Hathaway CEO at the start of 2026, appears to have internalized this lesson thoroughly, as evidenced by the recent $6.8 billion cash acquisition of Taylor Morrison Home and the preference for deploying Berkshire’s massive cash reserves rather than issuing equity.
The Dexter mistake also highlights a broader truth about competitive moats that Buffett frequently discusses. Namely, what appeared to be a solid business with reliable earnings lacked a durable competitive advantage, and when low-cost international competition arrived, the entire enterprise was destroyed.
Buffett has since emphasized that understanding the permanence of a company’s competitive position is paramount before committing capital.
The combination of misjudging the business quality and compounding the error through the use of stock makes Dexter perhaps the single most expensive mistake in Berkshire’s history on a per-share basis, as well as a cautionary tale about the irreversible nature of equity dilution when the acquired business fails to deliver lasting value.
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On the date of publication, Sarah Holzmann did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
