Business magnate Warren Buffett has long been hailed as one of the greatest value investors in modern America. Through decades of mergers and acquisitions, great investments and adhering to austere investing principles, Buffett earned this title as well as the title World's Richest Person in 2008.
Buffett invested in the early stages of The Coca-Cola Co., American Express Co. and several other modern behemoths, mostly before they were the titans you know today. But even Buffett has made some poor investments. Buffett’s “dumbest” investments ever also happened to be his best investment.
What happened: Buffett said the “dumbest” stock he ever bought was Berkshire Hathaway. In 1962, Buffett set his sights on a “cheap” textile company that had been going downhill for years. That company, Berkshire Hathaway, often closed mills, then used the proceeds to purchase stock back. Buffett believed this was going to happen again soon, so he purchased a substantial portion of the company.
When Berkshire Hathaway closed another plant, it opened a tender offer and called Buffett to ask how much he would sell his stock for. Buffett said he would sell it at $11.50 per share, but when the tender offer came, Berkshire Hathaway only offered to buy it for $11.38 and shorted him 12 cents per share.
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Buffett bought a controlling stake in the company and fired the manager in charge of shorting him 12 cents. But the textile business never turned around — it lost money for 20 years. So Buffett spent 20 years buying companies under the Berkshire Hathaway name to bail out the underlying textile business before eventually scrapping the assets.
Buffett estimates this cost him $200 billion, and the company he would have built without this anchor would be worth twice as much today without that textile business.
See Next: Buffett isn’t the only one who can find value and invest in early-stage companies. Recent changes in the law allow anyone to invest in startups and private companies at their earliest stages. For example, 3DOS is a startup raising on StartEngine, which means anyone can invest. The startup aims to build the world's largest peer-to-peer manufacturing network, allowing anyone to upload a design, receive royalties and have it made anywhere in the world.
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