How Warren Buffett's 'big error' may finally be paying off after a decade

Warren Buffett once called Berkshire Hathaway’s $37 billion acquisition of Precision Castparts in 2016 pricey, but the legendary investor’s bet might finally be paying off nearly a decade later.

Back in 2016, when the deal was first announced, Buffett said during an interview that it was "a very high multiple for us to pay," but told shareholders that he had great confidence in Precision Castparts CEO Mark Donegan, who continues to hold the top position at the company. In his annual letter to shareholders in 2021, he said Berkshire paid "too much for the company”, which makes "complex metal components and products."

While Precision Castparts was a "fine company – the best in its business”, as Buffett puts it, he had been "simply too optimistic" about its profit potential. “I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business,” he said, calling the company a big error in this context.


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However, the winds are now turning in his favour. There is currently a shortage of the products Precision Castparts makes that are essential for engine turbine blades, Reuters reported. This castings, parts made from liquid metal that are difficult to mass-produce, and forgings, which are made from solid metal and just as hard to make, have been ⁠one of the industry's most intractable chokepoints since the COVID-19 pandemic, the report added.

Last week, GE Aerospace announced a $11.75 billion acquisition of Consolidated Precision Products, one of the few companies that competes against Precision Castparts. Precision Castparts value has now soared to $100 billion, making it one of the more valuable divisions of Berkshire, Barron’s reported.

Why Warren Buffett is a legend

While investors across generations continue to follow legendary expert Warren Buffett’s invaluable market advice, the billionaire’s frugal lifestyle also grabs the headlines and speaks volumes about his money-saving habits.

The market veteran, often called the ‘Oracle of Omaha’, recently passed on the baton of Berkshire Hathaway’s leadership to his successor Greg Abel. But Buffett’s legacy will likely live on for generations to come, and inspire investors.

Buffett first bought Apple shares in 2016, and it has grown into Berkshire's single biggest position. It accounts for nearly 22% of the conglomerate's roughly $263 billion equity portfolio. Berkshire invested about $35 billion in Apple during the period between 2016 and 2018. That $35 billion investment then rapidly surged to around $185 billion before tax, including dividends and gains, Buffett was quoted by Business Insider as saying. "And I didn't have to do a damn thing," he added.

Also read | 'What if my father was a plumber?' Why Warren Buffett calls himself one of the world’s 10 luckiest people

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)