Even oracles make mistakes.
Berkshire Hathaway made $ 42.5 billion in 2020, but on Saturday CEO Warren Buffett admitted that the conglomerate’s results for the year contained a rare “ error ” – which cost the company $ 11 billion.
The Oracle of Omaha said in its annual letter to shareholders that its 2016 purchase of the Precision Castparts company failed, forcing Berkshire to write off or deduct nearly $ 11 billion from net income last year.
Buffett called the write-off on the company ‘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 aviation manufacturer for $ 32 billion.
“I paid too much for the company,” wrote Buffett, 90. “No one misled me in any way – I was just too optimistic about PCC’s normalized earnings potential.”
With airlines around the world flying much less in the past year due to the pandemic, the aerospace industry suffered major disruptions, making 2020 a difficult year for PCC.
“Last year, my calculation error was exposed by unfavorable developments in the aerospace industry, the primary source of PCC’s customers,” Buffett wrote.
Buffett stood his ground with the company, saying he still believes it will deliver good returns over time.
“However, I was wrong in judging the average amount of future earnings and, consequently, calculating the correct price to pay for the business,” Buffett said. “PCC is far from my first such mistake. But it’s a big one. “
Berkshire Hathaway remains the most expensive stock in the market, with its lightly traded “A” shares closing at $ 364,580 on Friday, up about 6 percent since the start of the year. The “B” shares, which split several years ago to create a more easily tradable stock, came in at $ 240.51 on Friday, up about 7.5 percent this year.