We all make mistakes. Maybe you bought a stock at its peak, or sold a winner way too early. It feels terrible.
Now, imagine making a mistake so big it cost you $200 billion.
That’s exactly what happened to the world’s most famous investor, Warren Buffett. And the story, hidden in his 1993 shareholder letter, is one of the most powerful lessons you’ll ever learn.
The “Perfect” Investment That Wasn’t
In 1993, Buffett was on top of the world. He found a company called Dexter Shoe. On paper, it was a dream.
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He called it “one of the best-managed companies Charlie [Munger] and I have seen.”
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He praised its brilliant founders and skilled U.S. workforce.
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In his shareholder’s letter, he bragged that Dexter “needs no fixing.”
Buffett saw a company that was successfully fighting cheap foreign imports. He believed its “ingenious management” was a permanent competitive advantage, an unbeatable “moat.”
He was so confident that he didn’t just buy it with cash. He bought it by trading away 1.6% of his own company, Berkshire Hathaway.
The Fatal Flaw 📉
There was just one problem: The moat was a mirage.
Buffett, the man famous for spotting advantages, completely misjudged this one.
He bet that a small shoe company in Maine could beat the massive, global trend of low-cost manufacturing. He was wrong.
Just a few years later, that “unbeatable” advantage was gone. The cheap imports Buffett dismissed completely overran the market. Dexter’s business collapsed, and the company eventually became worthless.
The Mistake Within the Mistake 💸
Losing the $433 million (the 1993 price) was bad. But that wasn’t the real mistake.
The real mistake was how he paid.
Those Berkshire Hathaway shares he traded for a worthless shoe company are, as of today, worth over $200 BILLION.
He didn’t just lose money. He traded a priceless, world-changing asset (his own company) for a dying one. It’s like trading a block of gold for a bucket of ice… right before the ice melts.
What’s the Lesson for You?
This isn’t about feeling smug that a billionaire messed up. It’s about learning from the most expensive mistake in investing history.
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Lesson 1: Even geniuses fail. Never follow anyone blindly, not even Buffett. Do your own thinking. If you don’t understand why a company is a winner, you’re just gambling.
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Lesson 2: Your biggest risk is misjudging the “moat.“ Is a company’s advantage really permanent, or is it temporary? Blockbuster thought its stores were a moat, then Netflix (streaming) arrived. Taxis thought their medallions were a moat, then Uber (technology) arrived. Always ask: “What could kill this business?”
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Lesson 3: Be careful what you sell to buy something new. The most powerful lesson is this: Don’t sell your best, proven assets to fund a new, speculative idea. Buffett traded a “forever” company for a “right now” company, and it cost him billions.
Every investor makes mistakes. The smart ones learn from them. The wisest ones learn from the mistakes of others.
What’s the biggest investing lesson you’ve ever learned (the hard way)? Let me know in the comments.
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