Buffett says Berkshire’s founding deal was his worst mistake

The legendary Warren Buffett enters his final week running Berkshire Hathaway with a clean admission. He says the deal that built the company was also the worst move he ever made.

Warren ran the company for six decades. He turned a broken textile business into a group worth more than $1 trillion. Still, he calls the purchase a mistake that cost him hundreds of billions of dollars.

That claim sounds wild on paper, since the company made Warren rich, and his Class A shares make up most of his $151 billion fortune. That puts him at No. 10 on the Bloomberg Billionaires Index. If he kept the B shares he started donating in 2006, now worth $208 billion, his wealth would sit near $359 billion, placing him at No. 22 instead.

A cheap textile stock turns into a personal standoff

Warren traced the error back to 1962. At the time, he ran a small partnership worth about $7 million. People would call it a hedge fund today. He spotted Berkshire Hathaway as a cheap stock based on working capital.

The business itself was a dying textile company. Mills kept closing. Each closure funded stock buybacks. He planned to buy shares, tender them back, and take a small win.

By 1964, he owned a large stake. Warren met CEO Seabury Stanton, who asked what price he wanted in a tender offer. He said $11.50 and gave his word. Weeks later, the offer arrived at $11.375. He felt cheated by one-eighth of a dollar. He refused to sell. He bought more shares. He took control. Stanton lost his job.

Warren later said the move locked serious money into a terrible business. Berkshire became the base for everything that followed. In 1967, he used it to buy a strong insurance company.

He later said he should have bought that insurer through a new entity instead. The textile assets stayed attached like dead weight. He spent 20 years trying to make textiles work before giving up.

Twenty years of losses drain billions from future value

Warren said the textile unit earned nothing year after year. Berkshire’s net worth sat near $20 million at one point. He said that money dragged the entire company down.

He estimated the cost at $200 billion in lost value. He joked that trying to run textiles made him think he could manage any bad business. That idea did not hold up.

When asked about lessons, Warren said managers should leave bad businesses fast. He said success comes from owning good companies, not fixing broken ones. He added a line to Berkshire’s annual report years later saying that when a great manager meets bad economics, the business reputation always wins.

Warren explained that he learned this late because his early training focused on cheap assets. He worked with Ben Graham starting around 1950. That system pushed bargain hunting. He later said buying good companies at fair prices works better. He said if he failed to learn that lesson from Berkshire, he never would.

Hard businesses offer no bonus points in markets

Warren said it took two decades to finally quit textiles. After Stanton, Ken Chase ran the division. He described Chase as honest and capable.Even with effort, the business failed.

Berkshire bought Waumbec Mills in Manchester, New Hampshire. That also failed. New machines promised job savings. Those plans piled up in a drawer. None fixed the core problem.

Warren said he still gets calls about hard businesses. People suggest tackling them with money and talent. He rejects that logic. He compared business to sports. In markets, difficulty brings no reward.

Easy wins count the same. He said stepping over low bars beats jumping high ones.

He acknowledged entering newspapers. Berkshire bought The Buffalo Evening News in 1977. Early years were weak. Later years were strong.

Warren said the industry changed completely by 2010. Berkshire sold the paper in 2020. He also described his approach as the opposite of business school playbooks. He avoids selling average units unless they face permanent losses or labor issues.

Asked about Charlie Munger, Warren said his partner would name the same mistake. Warren said Munger warned him back in 1959. He said listening earlier would have saved years of trouble.

Warren likes to laugh and accept that lesson publicly, right before stepping away from the job for good.

Join a premium crypto trading community free for 30 days - normally $100/mo.