Warren Buffett’s $ 10 billion mistake: Precision Castparts

(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 aircraft and industrial parts maker Precision Castparts Corp, his biggest acquisition.

Berkshire wrote off $ 9.8 billion of Precision’s value last August, as the coronavirus pandemic slashed demand for air travel and products from the Portland, Oregon-based unit.

In his annual letter to investors, Buffett said he had bought “a great company – the best in the business,” and Berkshire was “lucky” to have Precision chief executive Mark Donegan still in charge.

But Buffett said he was “just too optimistic about PCC’s normalized profit potential.”

The Precision cut more than 13,400 jobs, or 40% of its workforce, in 2020, and only recently started improving its margins, Berkshire said.

“I was wrong … in judging the average amount of future income and, therefore, calculating the correct price to pay for the business,” Buffett wrote. “CCP is far from my first such mistake. But it is a big problem.

Two years ago, Buffett admitted to “overpaying” for Kraft Foods when Berkshire and private equity firm 3G Capital merged it in 2015 with their HJ Heinz Co to form Kraft Heinz Co.

And in his 2008 annual letter, Buffett called his purchase of Dexter Shoe in 1993 the “worst deal” of all time, claiming he bought a “worthless company” and compounded his mistake by using Berkshire shares instead. only cash to finance the acquisition.

“I’ll make more mistakes in the future – you can bet on that,” he wrote.

Tom Russo, a longtime Berkshire investor, praised Buffett’s franchise.

“I admire Warren for taking personal responsibility for Precision Castparts,” he said. “Few managers are ready to admit their responsibility rather than take the blame.”