PCC is far from my first error of that sort. But it’s a big one. – Warren Buffett,

 Danger in Projecting Trends into the Future. There are several reasons why we cannot be sure that a trend of profits shown in the past will continue in the future. In the broad economic sense, there is the law of diminishing returns and of increasing competition which must finally flatten out any sharply upward curve of growth. There is also the flow and ebb of the business cycle, from which the particular danger arises that the earnings curve will look most impressive on the very eve of a serious setback. – Benjamin Graham, Security Analysis, 6th edition, p. 364

In investing, things change very slowly. A lot slower than many who are reading this article in 2021 are likely to think they do.

As for Warren Buffett, there is one more lesson from this episode for all of us. That is how well he handles this mistake. He doesn’t hide from it. Nor does he blame extraneous circumstances, such as the COVID pandemic, or anyone else. He owns up to the mistake and learns from it:

The final component in our GAAP figure – that ugly $11 billion write-down – is almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts (“PCC”), and I paid too much for the company.

No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential. Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers.

In purchasing PCC, Berkshire bought a fine company – the best in its business. Mark Donegan, PCC’s CEO, is a passionate manager who consistently pours the same energy into the business that he did before we purchased it. We are lucky to have him running things.

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.

PCC is far from my first error of that sort. But it’s a big one.

– Warren Buffett, 2020 Annual Letter