(Reuters) – Warren Buffett also makes mistakes.
The 90-year-old billionaire admitted on Saturday that he was “paying too much” when his Berkshire Hathaway Inc spent $ 32.1 billion in 2016 on the purchase of aircraft and industrial parts maker Precision Castparts Corp, its largest acquisition.
Berkshire wrote off $ 9.8 billion to Precision last August as the coronavirus pandemic undermined demand for air travel and the Portland, Oregon-based unit’s products.
In his annual letter to investors, Buffett said he had bought “a great company – the best in its business” and Berkshire was “lucky” that Precision Chief Executive Mark Donegan was still in charge.
But Buffett said he was “just too optimistic about PCC’s normalized earnings potential.”
Precision cut more than 13,400 jobs, or 40% of the workforce, by 2020, and has only recently started improving margins, Berkshire said.
“I was wrong… in judging the average amount of future earnings and, consequently, calculating the correct price to pay for the business,” Buffett wrote. “PCC is far from my first such mistake. But it’s a big one. “
Two years ago, Buffett admitted he was “overpaying” for Kraft Foods when Berkshire and private equity firm 3G Capital merged it with their HJ Heinz Co in 2015 to form Kraft Heinz Co. to shape.
And in his 2008 annual letter, Buffett called his 1993 purchase of Dexter Shoe his “ worst deal ” ever, saying he had bought a “ worthless company ” and compounded his mistake by using Berkshire stock instead of 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, welcomed Buffett’s candor.
“I admire Warren for taking personal responsibility for Precision Castparts,” he said. “Few managers are willing to acknowledge their responsibility rather than pass the blame on.”
Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy