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Warren Buffett’s Biggest Mistake: The Berkshire Hathaway Story
Warren Buffett, widely regarded as one of the greatest investors of all time, has repeatedly called his acquisition of Berkshire Hathaway “the dumbest stock I ever bought.” He estimates this single decision cost Berkshire shareholders roughly $200 billion in lost value over the decades. What started as a routine value investment in the early 1960s spiraled into a costly lesson in emotion, business economics, and the power of compounding.
The Origins of a Spiteful Decision
In the early 1960s, Buffett was running a small investment partnership when he spotted Berkshire Hathaway, a struggling New England textile manufacturer trading well below its working capital value. The company had been closing unprofitable mills for years and using the proceeds to repurchase shares—a pattern Buffett exploited for small, low-risk profits. He accumulated a sizable stake and, in 1964, met with CEO Seabury Stanton, who asked at what price Buffett would tender his shares. Buffett said $11.50, and Stanton verbally agreed.
Weeks later, the official tender offer arrived at $11.375—an eighth of a dollar less. Feeling personally insulted by what he saw as deliberate chiseling, Buffett reacted emotionally. Instead of selling as planned, he angrily bought more shares, gained control of the company, and fired Stanton. A petty act of spite had turned a minor arbitrage opportunity into ownership of a dying business.
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Trapped in a Dying Industry
Buffett suddenly found himself the steward of a large but terminally declining textile operation in an industry battered by low-cost foreign competition. For the next 20 years, he poured capital and effort into trying to turn it around—installing new equipment, acquiring another failing mill (Waumbec), and relying on dedicated managers and workers. Despite everyone’s hard work and integrity, the economics were hopeless. The textile division generated virtually no profits year after year, acting as a heavy anchor that dragged down Berkshire’s overall returns.
In 1967, Buffett acquired an excellent insurance company (National Indemnity) and housed it under Berkshire. He later admitted this was a mistake: the capital tied up in textiles should have gone straight into insurance from the start. Without the dead weight of unproductive assets earning nothing while requiring constant reinvestment, Berkshire’s compounding engine would have started from a much stronger base.
The Staggering Opportunity Cost
Buffett has calculated that if he had never taken control of the textile company and instead directed that capital directly into the insurance business, Berkshire Hathaway today would be worth approximately twice its current market value—implying an opportunity cost of around $200 billion. The textile albatross slowed the company’s growth for two decades until Buffett finally shut down the operations in the mid-1980s.
Ironically, the flawed vehicle became the permanent home for Buffett’s subsequent masterpieces: world-class insurance operations, See’s Candies, precision manufacturers, a major railroad, and huge stock positions in companies like Apple and Coca-Cola. Yet Buffett remains candid—the early drag was real and enormous.
Key Lessons for Investors
Buffett distilled several timeless principles from this costly mistake:
Avoid emotional decisions: Letting personal irritation override rational analysis turned a small slight into a massive commitment to a terrible business.
Great management cannot rescue bad economics: As Buffett famously said, when a manager with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
Buy wonderful companies at fair prices, not mediocre ones at bargain prices: Early in his career, Buffett followed Ben Graham’s “cigar-butt” approach of buying cheap but declining assets. Berkshire taught him that quality and durable competitive advantages matter far more.
Exit lousy businesses quickly: Clinging to a sinking ship out of pride or sunk-cost fallacy is futile. It took Buffett 20 years to close textiles—a delay he deeply regrets.
In business, there is no reward for degree of difficulty: Success comes from clearing easy one-foot hurdles repeatedly, not attempting heroic leaps over seven-foot bars.
Buffett’s self-described biggest mistake serves as a powerful reminder: even the greatest investors learn the hardest lessons through expensive errors, and humility, discipline, and a focus on quality are essential for long-term success.
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