“It’s better to learn from others’ mistakes than from your own—because it’s faster, less painful, and usually well documented. That’s why wise people read a lot.” — Inspired by Charlie Munger
Charlie Munger, Warren Buffett’s longtime partner, has always stressed the power of studying failures to gain wisdom. Few mistakes illustrate this better than Berkshire Hathaway’s 1993 purchase of Dexter Shoes. Buffett and Munger’s confidence in Dexter’s durable competitive advantage—a “moat”—proved costly.
The Mistake in Detail: Overestimating the Moat
Berkshire Hathaway acquired Dexter Shoes for $433 million in Berkshire stock—25,203 Class A shares. Dexter was a Maine-based shoemaker known for quality and strong management. Buffett praised Dexter as a “business jewel,” expecting it to retain its competitive edge. Much of Dexter’s manufacturing remained in Maine, and it held a loyal customer base willing to pay premium prices.
However, Buffett and Munger underestimated the impact of low-cost imports flooding the U.S. market, particularly from China. Dexter’s sales rapidly declined as customers shifted to cheaper alternatives. Within a few years, Dexter became worthless, its factories closed, and its value evaporated.
The true cost wasn’t just the loss of Dexter’s value but the Berkshire stock given up—shares that skyrocketed in value to over $19 billion today ($737k a share as of Oct, 2025). Buffett himself called this acquisition his “most gruesome” mistake, an example of overconfidence and poor assessment of industry changes.
The Psychological Side of the Dexter Shoes Loss
While the Dexter Shoes mistake was fundamentally a real financial and strategic error, psychology played a crucial role in how it unfolded.
- Overconfidence Bias: Buffett and Munger’s strong belief in Dexter’s moat and management led them to underestimate competitive threats, particularly from low-cost imports. This bias anchored their decision-making and clouded risk assessment.
- Sunk Cost Fallacy: Once the acquisition was made, admitting the mistake became psychologically difficult, which may have delayed corrective actions.
- Regret and Growth: Buffett’s candid labeling of this as his “most gruesome” mistake shows emotional reckoning—a vital step in learning and evolving as an investor.
This blend of hard business realities with human behavioral tendencies makes the Dexter Shoes case a powerful lesson in the importance of recognizing and managing psychological biases in investing.
Why It Matters: Lessons for Investors
This historic error teaches us to:
- Carefully evaluate the durability of a company’s competitive advantage, especially amid rapid market, technological, and geopolitical changes. Buffett admitted he overestimated Dexter’s moat and failed to anticipate the surge of low-cost imports that undermined the business.
- Avoid overpaying with valuable stock that can compound into an enormous opportunity cost. Paying for Dexter with Berkshire’s Class A shares meant sacrificing ownership in a growing, high-quality business for a declining one—a costly lesson on the dangers of using precious stock as acquisition currency.
- Maintain discipline and patience in acquisitions. Buffett realized he was too eager to deploy capital into Dexter instead of waiting for better opportunities, underscoring the value of a margin of safety and selective deal-making.
- Admit mistakes openly and learn from them. Buffett’s candid confession of this as his “most gruesome” mistake and his ability to internalize lessons exemplify humility and continuous improvement—essential traits for long-term investing success.
A Note on Scale and Resilience
Berkshire Hathaway used 25,203 Class A shares to acquire Dexter Shoes, roughly 1.6% to 2.1% of its Class A shares outstanding at the time. This represented a substantial stake, which today is valued at nearly $19 billion—highlighting the massive opportunity cost.
However, despite this costly mistake, Berkshire Hathaway’s immense financial strength and diversified portfolio insulated it from bankruptcy or severe harm. Warren Buffett and Charlie Munger’s disciplined investment approach and ability to learn from errors have allowed Berkshire to continue thriving for decades.
The Dexter Shoes blunder serves as a powerful reminder that even skilled investors make mistakes—what matters most is how they manage risk, learn, and move forward.
My $1,000 Lesson: Roth IRA Timing
Like Buffett and Munger’s giant misstep, I faced a smaller, yet painful, mistake during a Roth IRA conversion. I sold stocks and held cash temporarily. Even a one-day delay cost me $1,000 in missed market gains. This reminded me that timing and strategy are critical, especially in tax-sensitive maneuvers.
I documented my error and refined a repeatable method to execute Roth conversions efficiently, avoiding market timing blunders.
My book, A Smart Way to Convert to a Roth IRA Without Missing Market Gains, offers practical guidelines to help you convert smartly, capture gains, and avoid painful timing mistakes. Learn more and get your copy here.
Learn Smarter, Not Harder
You don’t have to pay the full price of costly financial mistakes. Study historic blunders—and learn from my Roth IRA conversion slip—to grow wiser and more confident.
This is the first post in a series about learning from mistakes—big and small—so you can avoid common financial traps and grow your wealth more effectively.