Warren Buffett Makes Mistakes Too — This One Cost $11 Billion

Even financial gurus like Warren Buffett, CEO of Berkshire Hathaway Inc., are not immune to making mistakes or bad investments. Buffett has acknowledged a costly “mistake” that impacted the conglomerate’s financials. Despite earning $42.5 billion in 2020, Buffett revealed in his annual letter to shareholders that the company had incurred a substantial loss of $11 billion because of an ill-fated acquisition.

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While Buffet's investment philosophy emphasizes long-term value, many of his investments deal with mergers and acquisitions, private equity and other risky bets. While Buffett, like any investor, has his losers, the winners often make up for themselves in the long run. These strategies are even starting to get replicated by retail investors on platforms like StartEngine.

In 2016, Berkshire Hathaway acquired aerospace manufacturer Precision Castparts Corp. for $32 billion. Buffett acknowledged that his initial optimism clouded his judgment, leading to an overvaluation of the aerospace manufacturing company.

Buffett took full responsibility for the error, saying, "I paid too much for the company. No one misled me in any way — I was simply too optimistic about PCC's normalized profit potential."

The adverse effects of the COVID-19 pandemic further compounded the situation, as the aerospace industry faced severe disruptions with reduced air travel. Buffett acknowledged this, stating, “Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC's most important source of customers.”

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Despite the setback, Buffett maintained his faith in the long-term prospects of Precision Castparts, believing it would eventually yield favorable returns.

“I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business,” he said. “PCC is far from my first error of that sort. But it's a big one.”

Precision Castparts continues to build its global workforce. The company employed 23,164 workers in 2022, a significant increase from the previous year. While the local workforce in the Portland, Oregon, metro area stood at approximately 2,700, the company’s presence extends beyond the region, as it maintains a global presence.

With a strong foundation, ongoing improvements and long-term industry forecasts projecting growth and demand for air travel and aerospace products, Precision Castparts aims to overcome the challenges and capitalize on opportunities.

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