How Warren Buffett’s biggest investing mistakes actually teach you smart money lessons

• Berkshire Hathaway’s biggest blunders offer a master class on markets and money

In 1993, Warren Buffett made what he later called his worst deal ever: the acquisition of Dexter Shoe. At first glance, Dexter seemed to fit the Berkshire Hathaway mold — strong brand, loyal customers, thrifty culture. But it carried a fatal flaw: high-cost U.S. manufacturing competing with rising Chinese imports.

Buffett paid $443 million in Berkshire stock. Within a decade, Dexter was worthless. The real sting? By 2019, the stock he gave up was worth almost $8 billion. As Buffett later put it, he managed to turn “a good business into a bad investment” — and paid for it with gold.

Mistakes like Dexter aren’t rare in Buffett’s long career. But what sets him apart is how candidly he talks about them. In the 8th edition of “The Essays of Warren Buffett,” which I’ve published since 1995, Buffett identifies more than 30 such errors. For Buffett, mistakes aren’t buried — they’re dissected.

Gen Re: Trust and turbulence

In 1998, Buffett bought General Re for $22 billion, despite misgivings about its derivatives exposure. His longtime business partner Charlie Munger warned against the deal. Buffett went ahead, planning to wind down the risky unit post-acquisition. He didn’t.

The result: years of headaches. Gen Re had underpriced policies, under-reserved risks, and amassed $6.1 billion in underwriting losses between 1999 and 2001. It was a cautionary tale in misplaced trust — proof that even close relationships demand hard diligence.

The Sokol shock

In 2011, David Sokol, a top Berkshire executive once seen as Buffett’s successor, recommended acquiring Lubrizol. Unbeknownst to Buffett, Sokol had recently bought $10 million in Lubrizol stock — after starting talks with the company but before disclosing the idea.

Buffett’s initial press release praised Sokol’s contributions and repeated his explanation. Critics pounced, saying it read more like a send-off than a reprimand. Buffett later admitted the statement should’ve come from lawyers, not him.

The incident laid bare a tension at the heart of Berkshire’s culture: decentralized trust versus centralized accountability. While supporters saw it as a rare lapse in an otherwise robust model, others warned that autonomy without oversight is a risk in itself.

A philosophy forged in failure

Beyond individual cases, Buffett has developed a framework for learning from mistakes. It began with Berkshire Hathaway itself — his 1965 purchase of a struggling textile firm based largely on price. It was his first “cigar butt” investment: a business with just one puff left, offering a last cheap hit before fizzling out.

From that early misfire, Buffett learned to prize quality over price, and ease over complexity. “We haven’t learned how to solve difficult business problems,” he wrote. “What we have learned is to avoid them.” It’s why he favors “one-foot hurdles” over seven-footers — simpler, more predictable businesses.

He also warns against the “institutional imperative” — the compulsion to do things simply because others are doing them. “I thought decent, intelligent managers would automatically make rational decisions,” he once confessed. “But I learned over time that isn’t so.”

To guard against this, Buffett insists on doing business only with people he likes, trusts and admires. “We’ve never succeeded in making a good deal with a bad person,” he says. Some of his worst errors, Buffett notes, were inactions — deals he passed on, including early chances to buy Amazon.com.

And when it comes to risk, Buffett stays grounded. He’s famously conservative on leverage, often forgoing higher returns in favor of financial resilience. “A small chance of distress or disgrace cannot, in our view, be offset by a large chance of extra returns.”

Mistake-Proofing the Berkshire Way

Buffett’s missteps aren’t confessions for the sake of catharsis — they’re embedded in Berkshire’s operating DNA. The company avoids debt, rarely uses stock for acquisitions and resists the “social proof” pressure that tempts other firms into frenzies. Still, even with those guardrails, blunders happen.

What distinguishes Buffett is not perfection, but process. He acknowledges errors, explains them, and updates his thinking. For Berkshire’s shareholders — and the business world at large—that radical transparency has become a case study in trust and resilience.

Buffett treats shareholders not as subordinates, but as partners. His annual letters read less like spin and more like seminars. Failures are aired as freely as triumphs. That’s not just refreshing — it’s instructive.

Turns out, the Oracle’s real superpower isn’t foresight — it’s hindsight without excuses. 

(Source: https://www.marketwatch.com/story/warren-buffetts-worst-money-mistakes-are-a-master-class-in-how-to-invest-wisely-b30baa55)