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Collection: Warren Buffett - #267 'Buffett's Worst Deal: Dexter Shoe'



Good afternoon. Mike Envine (PH) from Chelmsford, Massachusetts.

I noticed in the annual report that you took a charge-off for Dexter and put it under the management of H.H. Brown.

And I was thinking back, I believe in 1985 you wrote about the process you went through in closing the textile business. And I was wondering if you could elaborate how this situation is different.

I believe you indicated, in the textile business, that despite excellent management, it wasn’t possible to earn an economic return on the assets.


Yeah. Did you say that we took a charge-off on H.H. Brown?


No, I meant to say we took a charge-off on Dexter.


Oh, Dexter, yeah, absolutely. We lost a very significant amount of money on Dexter, thanks to a dumb decision that I made, and maybe several dumb decisions.

And I mean, that is a business that went offshore in a huge way. They’re close to 1,200,000,000 pairs of shoes made in — or used in this country. I never can figure out how they get to that number. I mean, I use a pair — (laughs) — about every five years. But four for every man, woman, and child. I don’t know, but that’s the number.

And you know, I don’t know whether it’s 5 percent now, but it’s something in that area, are made in this country, and hundreds of thousands of jobs have gone offshore with that.

The textile business, as you know, has gotten almost destroyed in this country. And when you have somebody like Burlington go into bankruptcy, you know, a wonderful company, spent lots of money on keeping their plants up to date and all of that sort of thing.

But in the end, you know, if you’re paying 10 times as much per hour for labor as somebody else, it’s awfully hard to be that good.

And that’s going on in furniture manufacturing now, too. We have a number of furniture retailers and, you know, Bill Child, or Irv Blumkin will go over to the Orient fairly frequently now. We’ll buy — we buy a lot — a lot of furniture comes from there. And that trend is moving in that direction in a very significant way.

And your question is — was your question why Fruit of the Loom would be different?


No, I was just wondering if there’s any hope for Dexter, or if it’s going down the same path as with textiles?


Oh, no, well, Dexter is now part of H.H. Brown, and it’s selling product which, overwhelmingly, is produced abroad. And H.H. Brown sells a very significant amount of product that’s produced outside the United States, although they still produce a lot of product in the United States.

But — no, the Dexter — we will have a significant shoe business. The shoe business — we had some contracts on the books from Dexter that were unprofitable, and they will run for another quarter. But we made a fair amount of money in the shoe business in the first quarter. Justin made money.

I think our shoe business will be OK. It won’t be a bonanza over time, but I think our shoe business — we’ve got very good management in there. We’ve got good management at H.H. Brown, and we’ve got good management at Justin.

And I would expect that we would have a substantial and a reasonably profitable shoe business in the future, but we will not be able to do it with a hundred percent or 90 percent or 80 percent domestic-produced shoes.

And in that respect, I was very wrong in paying what I did, and paying it in the manner I did, which was stock in the case of Dexter, for a domestic shoe manufacturer.



Yeah, that shows, which is important to show, that no matter how hard you work at having systems for avoiding error and practices of trying to stay within your circle of competency, et cetera, et cetera, you still make mistakes. And I think I can confidently promise that it won’t be our last mistake.


OK, here’s our Blue Chip Stamps. (Laughter)

But you know, you might think about this a bit, too. We had a lot of workers up in Dexter, Maine, and we’ve had a lot of workers at some of the H.H. Brown plants.

And you know, we take a little hit financially and we make it up by some trading strategy in government bonds or something like that, that requires, you know, no effort and not really too much brain power.

And when you think of the consequences to the people that have spent a lifetime learning one trade, you know, and who live in those areas, and through no fault of their own — none, I mean they’ve done a good job — they’ve done a great job — working.

They’re productive, but in the end, you know, their cost was 10 times or more, and they weren’t getting paid that well, but 10 times what it could get done for elsewhere in the world.

So, we haven’t really paid the price for that change in economic conditions. I mean, it’s the people who work there, the people who work at Burlington, or wherever, where the jobs disappear.

And that’s no argument for huge tariffs or anything of the sort. But retraining doesn’t do much good if you’ve worked in our textile mill, as many people did years ago, and you’re 60 years old and you only speak Portuguese.

Or if you work in Dexter, Maine, and you’re 58. I mean, retraining, it gets kind of meaningless. So, we’re the lucky ones, you know, basically in these situations.

And it is tough when you know one trade, particularly if you live in a small town, not lots of other employment opportunities or anything. So, you know, we have a charge-off and they have a huge change in their lives, basically.

Number 6.


~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.


[YAPSS Takeaway]

Mistakes are inevitable in investing, but the key is to get up and learn from each mistakes, and make a better decision next time.

"Yeah, that shows, which is important to show, that no matter how hard you work at having systems for avoiding error and practices of trying to stay within your circle of competency, et cetera, et cetera, you still make mistakes. And I think I can confidently promise that it won’t be our last mistake." ~Charlie Munger

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