Even the best investors make mistakes.
Warren Buffett has called his investment in Dexter Shoes:
“The worst deal I’ve ever made.”
At first, Dexter looked like a great business.
But over time, it became completely worthless.
In this case study, you’ll learn:
- Why Buffett invested in Dexter Shoes
- What went wrong
- The key mistakes
- How to avoid similar failures
The Investment: What Happened?
In 1993, Berkshire Hathaway acquired Dexter Shoes.
- Purchase price: ~$433 million
- Payment: Berkshire stock (not cash)
At the time:
- Dexter was a leading U.S. shoe manufacturer
- It had strong profits
- It appeared to have a competitive advantage
On the surface, it looked like a great investment.
Why Buffett Invested
Buffett believed Dexter had:
- A strong brand
- Consistent earnings
- A durable position in its market
This aligned with his framework:
- Understandable business
- Good financial performance
But one critical factor was misunderstood…
What Went Wrong
The core problem:
Dexter did NOT have a durable competitive advantage.
Key Issues:
1. No True Moat
Dexter’s products were easy to replicate.
Competitors—especially overseas manufacturers—could produce shoes cheaper.
2. Global Competition
Foreign companies entered the market with lower costs.
Dexter couldn’t compete on price.
3. Declining Economics
Margins shrank.
Profits disappeared.
Eventually, the business became worthless.
The Real Cost of the Mistake
The biggest mistake wasn’t just buying Dexter.
It was how Buffett paid for it.
He used Berkshire Hathaway stock.
Why This Matters:
That stock later became extremely valuable.
Today, Buffett has said the real cost of the deal is tens of billions of dollars.
Where the Framework Broke
Dexter failed one critical test:
This shows:
A business can look strong—but without a moat, it won’t last.
Key Lessons from Dexter Shoes
1. A Good Business Isn’t Always a Great Investment
Strong earnings alone are not enough.
2. Competitive Advantage Is Critical
Without a moat, profits disappear over time.
Competitive Advantage Explained
3. Global Competition Matters
Industries with low barriers to entry are risky.
4. Capital Allocation Is Crucial
How you invest—and what you pay with—matters.
5. Even Great Investors Make Mistakes
The key is learning from them.
What Buffett Learned
Buffett has openly reflected on this mistake.
The lesson:
Focus even more on durable competitive advantage
After Dexter, Buffett shifted further toward:
- High-quality businesses
- Strong moats
- Long-term dominance
How to Avoid This Mistake
Before investing, ask:
- Does this business have a durable advantage?
- Can competitors easily replicate it?
- Is pricing power strong?
- Will this business still be strong in 10–20 years?
If the answer is unclear, be cautious.
How This Fits Into Fundamental Investing
Dexter Shoes shows why fundamental investing matters.
Fundamental investing focuses on:
- Business quality
- Competitive advantage
- Long-term value
Buffett’s mistake highlights:
If you ignore these factors, even “good” businesses can fail.
