Warren Buffett’s ‘monumental’ mistake taught him this — What turns a good business into a bad investment?
Warren Buffett has had some of the highest highs among investors worldwide, but even the ‘Oracle of Omaha’ has made some mistakes. Here’s what he learned from his biggest mistake: “You can turn a good business into a bad investment if you pay them too much.”
Earlier this year, Warren Buffett officially handed over the reins of Berkshire Hathaway to Greg Abel, the longtime heir of his and his late partner Charlie Munger. While he stopped actively investing in the company, a clip of the billionaire investor’s MPW interview with Fortune (originally published on October 7, 2014) garnered more than 10,000 views on social media platform X (formerly Twitter).
What turns a good business into a bad investment? Here are Warren Buffett’s views
Speaking to the magazine about his own failures and learning from them, Warren Buffett described a good business as “one that generates a high rate of return on tangible assets.”
“It’s pretty simple. And the best businesses are the ones that grow and get high returns on tangible assets. But even the ones that don’t grow can be a good investment if they get high returns on tangible assets and of course you don’t pay too much,” he added.
Why elimination? Because the legendary investor lost billions of dollars (calculated in today’s terms) due to a deal he made in his early years. He explained: “They’re a good business to start with because of their high returns. (But if you pay too much for them, you can turn a good business into a bad investment. The biggest mistake we made in the early years was trying to buy a bad business at a really cheap price, and it took me about 20 or 30 years to realize that wasn’t a good idea.”
What was Warren Buffett’s worst business decision ever?
In various interviews, Berkshire’s annual shareholder meetings, and letters, Warren Buffett has never shied away from admitting his mistakes. He called its 1993 acquisition of Dexter Shoe Company “the worst deal ever.” He had paid $443 million in Berkshire stock for the acquisition of a business that seemed solid at the time; But the problem was that Chinese competitors could not withstand the price and supply competition and soon folded.
According to Investopedia, Warren Buffett’s earnings from the stocks he distributed until February 2025 were $17.87 billion. Over the years, Warren Buffett has said that the mistake was “colossal” and “deserves a place in the Guinness Book of World Records.”
However, the initial gaffe served one purpose: It taught the legendary investor an early lesson that led his moves to great success for Berkshire.
