Warren Buffett’s lesser-known failed bets

Warren Buffett is celebrated as one of the greatest investors of all time, with Berkshire Hathaway’s portfolio delivering compounded annual returns of over 19% for decades. His successes—Coca-Cola, American Express, Apple—are legendary. But beneath the glory lies a quieter truth: Buffett has made several failed bets and near-misses.

While these losses are rarely highlighted, they are crucial to understanding Buffett’s evolution as an investor. Far from tarnishing his legacy, his mistakes underscore his ability to learn, adapt, and stick to principles.

This article explores Buffett’s lesser-known failed bets, detailing what went wrong, how he responded, and what investors can learn from them.

1. The Early Textile Struggles of Berkshire Hathaway

Ironically, Buffett’s greatest investment empire was born from a mistake.

In the 1960s, Buffett began buying shares of Berkshire Hathaway, then a struggling New England textile mill, believing it was undervalued. He later admitted that he overestimated the prospects of the textile industry.

• The mills were capital-intensive and uncompetitive against foreign imports.

• Profits eroded year after year.

• Buffett eventually shut down the textile operations in 1985.

Lesson: Buffett calls this his “worst trade ever” because it tied up capital in a dying industry. But he transformed the company into a holding vehicle for better businesses—a reminder that even mistakes can seed greatness if managed wisely.

2. Dexter Shoe: The Vanishing Moat

In 1993, Buffett bought Dexter Shoe Company for $433 million—in Berkshire stock rather than cash. At the time, Dexter was a profitable U.S. shoemaker.

The problem? Globalization.

• Cheap imports from Asia eroded Dexter’s competitiveness.

• Within a decade, Dexter was essentially worthless.

• Because Buffett paid in Berkshire shares, the opportunity cost was enormous—today, those shares would be worth tens of billions.

Lesson: Buffett admits this was a catastrophic error. The moat he thought existed vanished quickly. It shows even Buffett can misjudge durability of competitive advantage, and that paying in stock magnifies opportunity costs.

3. The Airline Industry Rollercoaster

For decades, Buffett warned that airlines were value traps. He once joked that investors would have been better off if the Wright brothers had been shot down at Kitty Hawk.

Yet in 2016, Berkshire bought stakes in major U.S. carriers—American, Delta, Southwest, and United—worth over $7 billion. Initially, these investments looked promising as industry consolidation improved profitability.

Then came COVID-19. Travel demand collapsed, and Buffett exited all airline positions in 2020 at steep losses.

Lesson: Even when conditions seem to have structurally improved, industries with low margins, high fixed costs, and cyclical demand remain dangerous. Buffett’s U-turn reinforced his original skepticism.

4. IBM: Betting Wrong on Tech

For years, Buffett avoided technology stocks, citing limited understanding. In 2011, however, Berkshire disclosed a $10+ billion stake in IBM.

Buffett believed IBM’s sticky client relationships and transition to services made it a durable tech play. But:

• IBM struggled with declining revenues.

• It lagged rivals like Microsoft, Amazon, and Google in cloud computing.

• Buffett eventually admitted defeat, exiting by 2018.

The contrast is striking: his IBM bet faltered, but his 2016 investment in Apple became Berkshire’s largest and most profitable holding.

Lesson: Buffett misread technological disruption at IBM but corrected course with Apple, showing he can adapt his circle of competence.

5. Tesco: A Misstep in the UK

In the early 2000s, Buffett invested heavily in Tesco, the British supermarket giant. At its peak, Berkshire owned about 5% of the company.

Problems emerged:

• Tesco overexpanded internationally.

• Accounting irregularities surfaced in 2014.

• Competitive pressures from discount chains like Aldi and Lidl squeezed margins.

Buffett sold most of Berkshire’s stake at a loss, later admitting it was a $444 million mistake.

Lesson: Even strong brands can falter under poor management decisions and structural market shifts.

6. Salomon Brothers Scandal

In 1987, Buffett invested in Salomon Brothers, a prominent Wall Street investment bank. By 1991, a scandal broke—traders had illegally submitted bids for U.S. Treasury auctions.

Buffett stepped in as interim chairman to stabilize the firm, saving it from collapse but enduring immense reputational risk.

• Berkshire’s investment did not deliver expected returns.

• Buffett later admitted he underestimated the cultural and ethical weaknesses at Salomon.

Lesson: Great investors can fail not just by misjudging business models, but by underestimating human behavior and ethics.

7. Energy Bets: ConocoPhillips and Beyond

In 2008, Buffett invested billions in ConocoPhillips, betting on rising oil prices.

• Unfortunately, oil prices crashed during the global financial crisis.

• Berkshire lost billions as ConocoPhillips shares plummeted.

Although Buffett has had energy wins (e.g., Occidental Petroleum), his Conoco bet highlights the risk of commodity-driven investments.

Lesson: Timing matters in cyclical sectors—buying at peaks leads to painful drawdowns.

8. Pier 1, Retail, and Other Small Misses

Beyond the headline mistakes, Buffett has had smaller losses in retail and consumer companies:

• Pier 1 Imports: A small investment that soured as the retailer declined.

• JC Penney (via long-time partner Bill Ackman’s persuasion): Buffett avoided a direct stake, but acknowledged retail as a tough sector.

• USAir (1989): Buffett invested in preferred shares; the airline nearly collapsed before paying him back. He called it a “near-death” experience.

Lesson: Retail and airlines have repeatedly tested Buffett’s patience, reinforcing his preference for businesses with strong moats.

9. Kraft Heinz: A Stumble in Packaged Foods

One of Buffett’s most visible disappointments came with Kraft Heinz, a deal done alongside 3G Capital. Berkshire invested heavily, becoming a major shareholder.

• Initially, the merger looked brilliant, creating one of the world’s largest food companies.

• But 3G’s aggressive cost-cutting starved innovation.

• Consumer tastes shifted away from processed foods.

• In 2019, Kraft Heinz wrote down $15 billion in brand value.

Though Buffett still holds shares, the investment underperformed expectations, tarnishing his reputation as a dealmaker.

Lesson: Even iconic brands can decline if they fail to innovate—Buffett underestimated consumer preference shifts.

10. The Big Picture: Why Buffett’s Failures Matter

While these failed bets may seem costly, they are outliers against decades of success. Yet they are vital because:

1. They Humanize the Oracle: Even the greatest investor missteps.

2. They Teach Discipline: Buffett’s readiness to admit mistakes is as important as his wins.

3. They Highlight Adaptability: From textiles to tech, Buffett has evolved.

4. They Show Humility: He often calls Dexter Shoe his “biggest mistake” without sugarcoating it.

Lessons for Investors from Buffett’s Mistakes

From these failures, retail and professional investors alike can draw lessons:

• Don’t Overpay with Equity: Use cash if possible; equity can be vastly more valuable in the future.

• Beware of Cyclical Sectors: Airlines, energy, and retail often disappoint.

• Management Matters: Even strong brands like Tesco or Kraft can falter under weak leadership.

• Innovation Can’t Be Ignored: Buffett’s IBM miss shows the cost of underestimating disruption.

• Admit Mistakes Quickly: Buffett sells when the thesis is broken—he doesn’t double down blindly.

Conclusion

Warren Buffett’s reputation rests on extraordinary successes, but his lesser-known failed bets offer equally powerful lessons. From Dexter Shoe to airlines, IBM to Kraft Heinz, these mistakes reveal blind spots, changing market dynamics, and the humility of even the world’s greatest investor.

As Buffett himself says, “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” But when his own bets land on the table, Buffett dissects them with brutal honesty—reminding all investors that the path to success is paved not just with wins, but with learned failures.

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