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Even oracles make mistakes.
Berkshire Hathaway earned $ 42.5 billion in 2020, but on Saturday CEO Warren Buffett admitted the conglomerate’s results for the year included a rare “mistake” – which cost the company $ 11 billion.
The Oracle of Omaha said in its annual letter to shareholders that its 2016 purchase of Precision Castparts had gone wrong, forcing Berkshire to “write off” or deduct nearly $ 11 billion from its results last year.
Buffett called the company’s depreciation “ugly”. And he blamed himself, saying it was “almost entirely the quantification of a mistake I made in 2016”.
Berkshire, based in Omaha, Nebraska, bought the aerospace manufacturing company for $ 32 billion.
“I paid too much for the business,” wrote Buffett, 90. “No one misled me – I was just too optimistic about PCC’s normalized profit potential.”
With airlines around the world having flown significantly less in the past year due to the pandemic, the aerospace industry has suffered major disruptions, making 2020 a difficult year for PCC.
“Last year my miscalculation was exposed by unfavorable developments in the aerospace industry, PCC’s largest source of customers,” Buffett wrote.
Buffett supported the company and said he still believes that over time it will perform well.
“I was wrong, however, to judge the average amount of future income and, therefore, not to calculate the appropriate price to pay for the business,” Buffett said. “CCP is far from my first such mistake. But it is a big problem.
Berkshire Hathaway remains the most expensive stock on the market, with its lightly traded “A” shares closing Friday at $ 364,580, up about 6% year-to-date. Its “B” shares, which were split several years ago to create a more easily tradable stock, stood at $ 240.51 on Friday, up about 7.5% this year.
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