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Why Dexter Shoe Became So Costly for Berkshire

  • Investing
  • Buffett
  • Case Studies
  • Investment Failures

Buffett acquired Dexter Shoe with Berkshire shares in 1993 and later acknowledged misjudging its competitive advantage. As the business lost its value, the Berkshire shares paid for it continued appreciating, increasing the transaction’s opportunity cost.

Source dates and applicability

The acquisition occurred in 1993. Later assessments use reporting-year materials from 2000–2016, with shareholder letters generally issued the following year. The $3.5 billion, $5.7 billion and over $6 billion figures value the shares at different retrospective dates. As of October 2026, the case illustrates competitive-advantage risk and stock-payment opportunity cost. These amounts are not current valuations or same-year cash losses.

Investment Outcome

Buffett acquired Dexter Shoe in 1993 believing it had a durable competitive advantage, only to see the business decline over the next few years. Because he paid with Berkshire shares, the investment effectively meant shareholders gave up 1.6% of Berkshire in exchange for a business that ultimately became worthless.

1. What the Company Looked Like at the Time

Breaking down what Buffett wrote in the year of the acquisition, these were the main things he saw in Dexter Shoe:

  1. He thought extremely highly of its management, calling Dexter one of the best-managed companies Charlie and he had encountered in their business lives.
  2. He believed the U.S. factories of Dexter and H.H. Brown remained highly competitive against shoes imported from low-wage countries.
  3. He saw a business with scale, distribution, and a clearly defined product range: it produced more than 7.5 million pairs of shoes a year, primarily traditional shoes for traditional retailers, and was also a major producer of golf shoes.
  4. He treated positive feedback from major customers as supporting evidence, noting that both Nordstrom and J.C. Penney had given Dexter supplier performance awards.
  5. His previous two shoe investments reinforced this judgment. H.H. Brown and Lowell had exceeded expectations after joining Berkshire, and Frank Rooney, one of H.H. Brown’s key managers, strongly endorsed Dexter’s management team.

2. What Happened Next

In 1993, Berkshire acquired Dexter for 25,203 Berkshire Class A shares, in a transaction valued at approximately $433 million.

Buffett later recalled that Dexter had an excellent operating record at the time and looked nothing like a cheap but poor-quality cigar-butt stock. He therefore believed he was buying a shoe company with a durable competitive advantage.

Instead, the enduring business advantage he thought he had identified disappeared within a few years. By 2000, Berkshire’s annual report stated that Dexter had incurred operating losses because of intense competition from imports, and it recognized a $219 million goodwill impairment related to the acquisition.

3. A Costly Choice of Payment

Payment in Berkshire shares further increased the opportunity cost of the transaction.

Had he paid cash, the loss would have been roughly the original $400-million-plus purchase price.

In his 2007 shareholder letter, Buffett reflected that the real cost to shareholders had reached $3.5 billion, because he had exchanged 1.6% ownership of Berkshire for a business that later became worthless.

In 2014, Buffett calculated it again: the Berkshire shares he had handed over were now worth about $5.7 billion.

In the 2016 reporting-year letter, he stated that the 25,203 shares were worth more than $6 billion at that year-end.

Dexter’s continuing deterioration also had social consequences. In his 2015 shareholder letter, Buffett noted that the collapse of Dexter Shoe had cost about 1,600 employees their jobs in a small town in Maine.

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