Warren Buffett Dexter Shoe Investment. Why Warren Buffett invested in Dexter Shoe, and why he later came to regret this investment.
Buffett acquired Dexter Shoe in 1993 with $420 million worth of Berkshire stock. Dexter made $40 million in pre-tax earnings then from selling popular-priced men’s and women’s shoes.
Warren Buffett Investment in Dexter Shoe
When Buffett first made the investment, Buffett lauded the company as one of the best-managed companies that he has seen in his lifetime. He also asserted that although the domestic shoe industry was generally thought to be unable to compete with imports from low-wage countries, Dexter was one example of a highly competitive business within the industry.
However, Buffett would later come to regret this investment – in particular, paying for it in Berkshire stock even though Berkshire stock was at an all-time high back then. Buffett later realized that attempting to keep shoe production domestic has been very costly, as U.S. companies will not be able to compete with foreign companies that were able to hire workers at a fraction of U.S. wages; this meant that locally produced shoes will be significantly more expensive than low-priced imported shoes.
Worst Deal Buffett ever made
Buffett called Dexter the worst deal he had ever made in his 2007 letter to shareholders. He writes, “What I had assessed as durable competitive advantage vanished within a few years… 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”.