Warren Buffets Greatest Career Mistake

By his own admission, Warren Buffets's greatest career mistake was buying Berkshire Hathaway!

Everyone assumes that Buffett’s decision to buy Berkshire Hathaway was a typical Buffett stroke of genius. Nothing could be further from the truth.

We like to think of Warren Buffett as the wise,elderly investment Guru, but Buffett too was young once . Berkshire Hathaway was not always a financial powerhouse; it was once a struggling textile mill.

Buffett had noticed a trading pattern in Berkshire’s stock.The company would sell off an under-performing mill. It would use the proceeds to buy back stock, which would temporarily boost the stock price. Buffett’s strategy was to buy Berkshire stock each time it sold a mill and then sell the company its stock back in the share repurchase for a small, tidy profit.

But then ego got in the way. Buffett and Berkshire’s CEO had a gentleman’s agreement on a tender offer price. But when the office offer arrived in the mail, Buffett noticed that the CEO’s offer price was 1/8 of a point lower than they had agreed previously.

Taking the offer as a personal insult, Buffett bought a controlling interest in the company so that he could have the pleasure of firing its CEO. And though it might have given him satisfaction at the time, Buffett later called the move a “200-billion-dollar mistake.”

Why? Because Buffett wasted precious time and capital on a textile mill in terminal decline rather than allocate his funds in something more profitable—in his case, insurance.

By Buffett’s estimates, had he never invested a penny in Berkshire Hathaway and had instead used his funds to buy, say, Geico, his returns over the course of his career would have been doubled. 

Berkshire will still go down in history as one of the greatest investment success stories in history, of course.

It was still a terrible investment and a major distraction that cost Buffett dearly in terms of opportunity cost.

Thank you, Mr. Buffett for letting us know that even you can let ego get in the way and make mistakes