Buffett's Biggest Mistake? Buying Berkshire Hathaway

Warren Buffett

that the biggest investing blunder he ever made was buying textile company Berkshire Hathaway. Over the years, Berkshire has transformed into a vast and diversified conglomerate, but originally it was a money losing textile operation. The Oracle of Omaha told CNBC's Becky Quick that his holding company would be worth $200 billion more if he had bought a good insurance company instead of Berkshire. According to Buffett, his involvement with Berkshire was never supposed to conclude with him buying the entire company. He said that the company had been going downhill for years and had been closing a lot of its textile mills. Every time Berkshire closed one of these mills, they would buy back stock. Buffett said that "I figured they were gonna close, they only had a few mills left, but that they would close another one. I'd buy the stock. I'd tender it to them and make a small profit." He began buying Berkshire stock. By 1964, he had a relatively large position in the company. When he visited with management they told him they had just sold some more mills and intended to use the proceeds to buy back stock. Buffett told management that he would tender his shares for $11.50. It appeared that he had struck a deal at this price. A few weeks later, Buffett got a tender offer from Berkshire Hathaway - at $11 and three eighths - or 1/8 less than what he had expected. According to Buffett, he had been "chiseled for an eighth." He explained, "I would have tendered my stock. But this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton (the company's CEO)." Buffett's spiteful move would end up being very costly, as he said "I had now committed a major amount of money to a terrible business. And Berkshire Hathaway became the base for everything pretty much that I've done since." He described the textile firm's assets as an anchor on his holding company for 20 years. He said, "for 20 years, I fought the textile business before I gave up." By his estimation, if he had just put his Berkshire stake into a good insurance business to begin with, his holding company would be worth twice as much. He said, "Berkshire Hathaway was earning nothing, year after year after year after year."