(Reuters) – Warren Buffett also makes mistakes.
The 90-year-old billionaire admitted on Saturday that he was “paying too much” when his Berkshire Hathaway Inc spent $ 32.1 billion in 2016 to buy aircraft and industrial parts maker Precision Castparts Corp., its largest acquisition.
Berkshire amortized $ 9.8 billion worth of Precision last August as the coronavirus pandemic diminished demand for air travel and products from the Portland, Oregon-based unit.
In his annual letter to investors, Buffett said he bought “a good company: the best in his business” and Berkshire was “lucky” to have Precision CEO Mark Donegan at the helm.
But Buffett said he was “simply too optimistic about the normalized profit potential of PCC.”
Precision laid off more than 13,400 jobs, or 40% of its workforce, by 2020, and has only recently begun to improve margins, Berkshire said.
“I was wrong … judging the average amount of future earnings, and as a result, I was wrong in my calculation of the right price to pay for the company,” Buffett wrote. “PCC is far from my first mistake of this kind. But it’s big. “
Two years ago, Buffett admitted he “paid too much” for Kraft Foods when Berkshire and private equity firm 3G Capital merged it in 2015 with its HJ Heinz Co. to form Kraft Heinz Co.
And in his 2008 annual letter, Buffett defined his purchase of Dexter Shoe in 1993 as his “worst deal” ever, saying he had bought a “useless business” and aggravated his mistake in using Berkshire shares in place of money to finance the acquisition.
“Make more mistakes in the future; you can bet on that,” he wrote.
Tom Russo, a longtime investor in Berkshire, welcomed Buffett’s candor.
“I admire Warren for taking personal responsibility for Precision Castparts,” he said. “Few managers are willing to admit their responsibility instead of blaming it.”
Report by Jonathan Stempel in New York; Edited by Marguerita Choy