Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) was originally in the textile business. It was the result of the merger of Berkshire Fine Spinning Associates with Hathaway Manufacturing Company.
In 1962, Warren Buffett began to purchase Berkshire Hathaway because its share price was trading at the discount to its working capital, a very typical position in a diversified portfolio following the Benjamin Graham approach.
He bought with no intention of holding it for long; he thought he would sell it sooner or later. He remembered: “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.”
In 1964, Staton, the CEO, made the verbal offer of $11.50 per share for Buffett to buy back the company’s shares. Buffett had agreed, but when he received the tender offer in writing, it was only $11 3/8 per share. That made Buffett very angry, so the emotional push had made him, instead of selling at a little bit lower price, buy more to own the controlling stake in the company so that he could fired Staton.
This is a good example of how in investing, the worst enemy is likely to be yourself. Even Warren Buffett, the most successful investor of all time, once made the same psychological mistake when he was 34 years old.
In a recent interview in 2010, Buffett admitted that purchasing the controlling stake in Berkshire Hathaway was the biggest investment mistake he had ever made; it can be called “dumbest” stock he has ever bought. He figured that instead of putting the money to buy Berkshire Hathaway, he would put it into an insurance company to start with; Berkshire would be worth twice as much as $200 billion.
At that time the net worth was $22 million, and the company had earned nothing, year after year after year. And actually Buffett has kept the textile business in operation with accumulating losses for over 20 more years since he took control.
The very simple but important lesson is that even Warren Buffett has made huge mistakes of omission that cost him a whole lot of money compounding over time. We, value investors, need to always remind ourselves that we have to control our emotions, not being driven by any psychological factor because the worst enemy is likely to be ourselves.
In 1962, Warren Buffett began to purchase Berkshire Hathaway because its share price was trading at the discount to its working capital, a very typical position in a diversified portfolio following the Benjamin Graham approach.
He bought with no intention of holding it for long; he thought he would sell it sooner or later. He remembered: “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.”
In 1964, Staton, the CEO, made the verbal offer of $11.50 per share for Buffett to buy back the company’s shares. Buffett had agreed, but when he received the tender offer in writing, it was only $11 3/8 per share. That made Buffett very angry, so the emotional push had made him, instead of selling at a little bit lower price, buy more to own the controlling stake in the company so that he could fired Staton.
This is a good example of how in investing, the worst enemy is likely to be yourself. Even Warren Buffett, the most successful investor of all time, once made the same psychological mistake when he was 34 years old.
In a recent interview in 2010, Buffett admitted that purchasing the controlling stake in Berkshire Hathaway was the biggest investment mistake he had ever made; it can be called “dumbest” stock he has ever bought. He figured that instead of putting the money to buy Berkshire Hathaway, he would put it into an insurance company to start with; Berkshire would be worth twice as much as $200 billion.
At that time the net worth was $22 million, and the company had earned nothing, year after year after year. And actually Buffett has kept the textile business in operation with accumulating losses for over 20 more years since he took control.
The very simple but important lesson is that even Warren Buffett has made huge mistakes of omission that cost him a whole lot of money compounding over time. We, value investors, need to always remind ourselves that we have to control our emotions, not being driven by any psychological factor because the worst enemy is likely to be ourselves.
