Warren Buffet’s TOP 4 LOSSES (-$14 BILLION) + 4 Lessons You Can Apply To Your Investment Company

Warren Buffet’s Greatest Losses Transformed Into Actionable Lessons

WARREN. EDWARD BUFFET. — Few Investors In History Have Been So Successful As To Raise Their Name To A Level Of Global Fame and Recognition. (And Yes, That’s His Real Middle Name)

Buffet has been a household name for at least the last 30 years and is still relevant and talked about in the news to this day. With that being said, it’s safe to say that he has an excellent track record in terms of his investment portfolio and pulls in above average returns for his equally famous firm Berkshire Hathaway, regularly. We can learn a lot from him, and even from his mistakes. Great reward comes often comes with great risk of failure, which even the “Omaha Oracle” isn’t immune to. And as with taking risks goes, you don’t always come out on top. For the investor, the stakes are high and can result in losses of tens of billions of dollars from only a few deals.

In this article I’ll discuss the worst calls Buffet has made during his career that cost him and his shareholders a fortune and the lessons you can learn from and implement at your investment company.

1. DEXTER SHOES 1993 (- $9 Billion)

Even Buffet himself deems this as the worst deal of his entire life. A gruesome mistake resulting in the brutal “bloodshed” of capital.

Maine Shoemaker, Dexter Shoes, caught the attention of the investor in ’93 and he bought the company for 25,203 Class A shares, worth $433 million at the time (worth $8.7 billion today).

“Dexter, I can assure you, needs no fixing: It is one of the best-managed companies Charlie and I have seen in our business lifetimes,” Buffett said in his 1993 letter to shareholders. Dexter was a “business jewel,” he went on, adding that it was a “sound decision” to pay for it with Berkshire stock. Boy was he wrong. Within the next couple of years the imminent threat of cheap, imported shoes made by low-wage workers overseas. They lost their competitive advantage and Warren soon realized his mistake, but not soon enough to prevent a record loss of around $9 billion.

Buffet tried to save the company by importing cheaper shoes internationally, but it wasn’t enough to turn this Titanic of a disaster around.

“Our once-prosperous Dexter operation folded, putting 1,600 employees in a small Maine town out of work,” he said. “Many were past the point in life at which they could learn another trade.”

“We lost our entire investment, which we could afford, but many workers lost a livelihood they could not replace.”

What Can Learn From It:

Dexter Shoes failed to sustain a competitive advantage, so all it took was a supplier with a lower price to put them out of business. A piece of advice he later gave on competitive advantage was that if ‘someone with a lot of money can come in and crush your business, then there is no sustainable advantage. If Dexter shoes had repositioned themselves as a high value company that sacrifices lower cost and higher margins from outsourcing labor to support the American economy and keep jobs in the U.S — perhaps they would have survived.

What is your company’s sustainable competitive advantage? Price? Relationships? Brand? Or could someone with a billion dollars crush your company with more money alone? Be honest. If you can’t find the answer to this question, then you might start thinking about it now.

One way to “deepen the moat” (a term coined by WB) and keep competitors at bay is with trust, branding and providing the most value to customers. This can come in the form of content, tailored customer experience on and offline, brand loyalty and conveying a purpose-driven mission that connects with your customer’s core values.

2. KRAFTHEINZ (-5 Billion)

This one is still up in the air since Buffet is known not to budge on his investments according to his famous “buy and hold” philosophy. Although it’s not looking good if nothing changes for the newly merged condiments company. Perhaps Warren’s Jedi patience will shine through at the end, but for now the company had proved to be a loss.

Ever since the merger in 2015 by Berkshire and private equity firm 3G — the combined company has lagged behind its competition in revenue and growth, primarily caused by its failure to keep up with changing consumer tastes and migration from processed and packaged foods. Although shares have plunged 62% and two reputable credit rating agencies downgraded its corporate debt to junk status earlier this year, Berkshire is holding firm as always. In a letter to shareholders in February, Buffett chose to leave Kraft Heinz out of the conversation almost entirely, except to note that Berkshire’s $13.8 billion investment was now valued at just $10.5 billion at year’s end, a figure that’s closer to $8.8 billion as of Kraft Heinz’s most recent price.

What We Can Learn From It:

This is the oldest story in the book, companies that fail to adapt to changing consumer tastes and behavior become becoming irrelevant, outdated and dying a sick and slow death. Does anybody remember Blockbuster, Enron, Xerox? Yesterday these companies were thriving and the next they were out of business. Why? Because they stuck with “what was working”.

In short, avoid letting your company be like Blockbuster. Change doesn’t have to be a bad word — Don’t be afraid to adapt and innovate, it might just save your company’s life.

3. SALOMON BROTHERS ( 1991)

In 1987, bond trading firm Salomon Brothers disclosed a $70 write down of debt acquired by trading junk bonds. The series of events that succeeded led to the market crash of 1987. Traders in Salomon were placing false Treasury bond bids to flout trading rules. Shortly before, Buffett had invested $700 million in Salomon. The Salomon scandal wiped off one-third of Buffett’s investment. For sanity to return amid the chaos, Buffett chose to take the reins of the company for a period of nine months, when he went about ruthlessly firing personnel involved in the dupe. By then, normalcy was restored and the turned-around firm was sold off to Travelers Companies Inc. Buffett pocketed a neat profit, as his investment had more than doubled after the acquisition. The Scandal was the source of media fire on Forbes, Business Week and is featured in the Harvard Business Review as a two part case study.

What We Can Learn From it:

Even though Buffet still managed to pull a profit from this one, it was too close of a call to not take a second to analyze what went wrong. The biggest blunder an investment firm can make is lack of transparency — and illegal deals of course. In this day and age social media is powerful and transparency is key in a world where everything is everywhere for everyone to see. And this rule is especially true for the financial services industry where shady deals and behind the scenes scandals pop up every week.

Warren was able to pull out a profit for Berkshire and survived, but public trust in the brand had died forever — leaving the owners holding the bag. Remember Wells Fargo? It took a century to build the brand’s trust and a day for them to lose it all. What happened at Salomon Brothers decades earlier is a similarly tragic tale.

4. The Berkshire Hathaway Company Website

(-$ Unknown)

The front page and top salesperson of the most famous Investment Company’s website looks like a classifieds website from 1985. In my opinion, this is unacceptable except for maybe the most well known firm in the world. Since everyone already knows about them and trusts them and they don’t need to make any lasting impressions — perhaps they can afford such a horribly outdated, poorly designed website that no one will ever stay on for more than 5 seconds. Maybe it doesn’t cost them revenue or precious leads, but for any less celebrated firm — it’s a kiss of death. If your website is outdated, you’re sending traffic away and giving a terrible first impression for your customers and people who do want to do business with you.

One interesting thing to note here is the link on the bottom right to Berkshire Activewear — Buffet’s clothing line.

This links out to an online store that was made using Shopify (an excellent choice for e-commerce if you know what you’re doing). Except this site is also poorly designed and not optimized to generate any sort of sales. It’s hard to believe that they are moving a single jacket from this lackluster, text-heavy set up.

With that being said I hope that Mr. Buffet and Berkshire Hathaway stick to what they do best which is making smart investments — and leave the rest up to people like me who do these things for a living.