(Reuters) – Warren Buffett also makes mistakes.
The 90-year-old billionaire admitted on Saturday that he “paid too much” when his Berkshire Hathaway Inc spent $ 32.1 billion in 2016 to buy its largest acquisition, aircraft and industrial parts manufacturer Precision Castparts Corp.
Berkshire wrote off $ 9.8 billion in Precision’s value last year as the coronavirus pandemic weakened demand for air travel and products in Portland, Oregon.
In his annual letter to investors, Buffett said he had bought a good company – the best in his business – and Berkshire was ‘happy’ that Precision CEO Mark Donegan was still in charge.
But Buffett said he was “simply too optimistic about PCC’s normalized profit potential.”
Precision has shaken off more than 13,400 jobs, or 40% of its workforce, by 2020 and only recently have margins started to improve, Berkshire said.
“I was wrong … when I judged the average amount of future earnings and consequently wrong in my calculation of the right price to pay for the business,” Buffett wrote. ‘PCC is far from my first mistake of its kind. But this is a big one. ‘
Two years ago, Buffett admitted that he “paid too much” for Kraft Foods when Berkshire and the private equity firm 3G Capital merged it in 2015 with their HJ Heinz Co to acquire Kraft Heinz Co.
And in his 2008 annual letter, Buffett called his purchase of Dexter Shoe in 1993 his ‘worst deal’ ever, saying he had bought a “worthless business” and magnified his mistake by using Berkshire shares rather than cash to buy the acquisition. finance.
‘I will make even more mistakes in the future. You can bet on that, ‘he wrote.
Tom Russo, a longtime Berkshire investor, welcomed Buffett’s candor.
“I admire Warren for taking personal responsibility for Precision Castparts,” he said. “Few managers are willing to acknowledge their responsibility rather than take the blame.”
Reporting by Jonathan Stempel in New York; Edited by Marguerita Choy