Monday, October 18, 2010

"Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder" (BRK.B; BRK.A)

From CNBC:
Warren Buffett says Berkshire Hathaway is the "dumbest" stock he ever bought.
He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to "chisel" Buffett out of an eighth of a point on a tender deal.

Buffett tells the story in response to a question from CNBC's Becky Quick for a Squawk Box series on the biggest self-admitted mistakes by some of the world's most successful investors.
Buffett tells Becky that his holding company (presumably with a different name) would be "worth twice as much as it is now" — another $200 billion — if he had bought a good insurance company instead of dumping so much money into the dying textile business.

Here's his story:
BUFFETT:  The— the dumbest stock I ever bought— was— drum roll here— Berkshire Hathaway.  And— that may require a bit of explanation.  It was early in— 1962, and I was running a small partnership, about seven million.  They call it a hedge fund now.
And here was this cheap stock, cheap by working capital standards or so.  But it was a stock in a— in a textile company that had been going downhill for years.  So it was a huge company originally, and they kept closing one mill after another.  And every time they would close a mill, they would— take the proceeds and they would buy in their stock.  And 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.

So I started buying the stock.  And in 1964, we had quite a bit of stock.  And I went back and visited the management,  Mr. (Seabury) Stanton.  And he looked at me and he said, ‘Mr. Buffett.  We've just sold some mills.  We got some excess money.  We're gonna have a tender offer.  And at what price will you tender your stock?’...MORE