Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder
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Companies:Berkshire Hathaway Inc.
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BRK-A 124,865.01 +65.01
On Monday October 18, 2010, 12:06 pm EDT
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?'
And I said, '11.50.' And he said, 'Do you promise me that you'll tender it 11.50?' And I said, 'Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock to- at 11.50.' I went back to Omaha. And a few weeks later, I opened the mail-
BECKY: Oh, you have this?
BUFFETT: And here it is: a tender offer from Berkshire Hathaway- that's from 1964. And if you look carefully, you'll see the price is-
BECKY: 11 and-
BUFFETT: -11 and three-eighths. He chiseled me for an eighth. And if that letter had come through with 11 and a half, 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. (LAUGHTER)
Now, that sounds like a great little morality table- tale at this point. But the truth is 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. So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway. I really should- should have bought it for a new entity.
Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren't any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave up. As instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now. So-
BECKY: Twice as much?
BUFFETT: Yeah. This is $200 billion. You can- you can figure that- comes about. Because the genius here thought he could run a textile business. (LAUGHTER)
BECKY: Why $200 billion?
BUFFETT: Well, because if you look at taking that same money that I put into the textile business and just putting it into the insurance business, and starting from there, we would have had a company that- because all of this money was a drag. I mean, we had to- a net worth of $20 million. And Berkshire Hathaway was earning nothing, year after year after year after year. And- so there you have it, the story of- a $200 billion- incidentally, if you come back in ten years, I may have one that's even worse. (LAUGHTER)
Current Berkshire stock prices:
Class B: (NYSE: BRK.B)
Class A: (NYSE: BRK.A)
For more Buffett Watch updates follow alexcrippen on Twitter.
Email comments to [email protected]
Companies:Berkshire Hathaway Inc.
Related Quotes
Symbol Price Change
BRK-A 124,865.01 +65.01
On Monday October 18, 2010, 12:06 pm EDT
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?'
And I said, '11.50.' And he said, 'Do you promise me that you'll tender it 11.50?' And I said, 'Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock to- at 11.50.' I went back to Omaha. And a few weeks later, I opened the mail-
BECKY: Oh, you have this?
BUFFETT: And here it is: a tender offer from Berkshire Hathaway- that's from 1964. And if you look carefully, you'll see the price is-
BECKY: 11 and-
BUFFETT: -11 and three-eighths. He chiseled me for an eighth. And if that letter had come through with 11 and a half, 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. (LAUGHTER)
Now, that sounds like a great little morality table- tale at this point. But the truth is 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. So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway. I really should- should have bought it for a new entity.
Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren't any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave up. As instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now. So-
BECKY: Twice as much?
BUFFETT: Yeah. This is $200 billion. You can- you can figure that- comes about. Because the genius here thought he could run a textile business. (LAUGHTER)
BECKY: Why $200 billion?
BUFFETT: Well, because if you look at taking that same money that I put into the textile business and just putting it into the insurance business, and starting from there, we would have had a company that- because all of this money was a drag. I mean, we had to- a net worth of $20 million. And Berkshire Hathaway was earning nothing, year after year after year after year. And- so there you have it, the story of- a $200 billion- incidentally, if you come back in ten years, I may have one that's even worse. (LAUGHTER)
Current Berkshire stock prices:
Class B: (NYSE: BRK.B)
Class A: (NYSE: BRK.A)
For more Buffett Watch updates follow alexcrippen on Twitter.
Email comments to [email protected]
18/10 2010 20:35 TeamGarlic 0
34856 Der findes flere historier om investorer, som har lavet rigtig gode penge på forsikringsselskaber, hvilket WB himself har bevist flere gange, at han også godt selv kan finde ud af. Min helt udi emnet forbliver dog Prem Watsa med sin fantastiske arbejde med FairFax Financial.
18/10 2010 20:48 colombuss 034859 Tak for dit tip forleden. Jeg holdt snitterne helt væk. Jeg var tæt på at kommitte til rigtig mange.
Jeg tror det er værd at kikke på alm.brand ved emmisionen, nørresundby bank, kan også blive aktuel på et tidspunkt...Har du nogle danske du kikker på?
Jeg tror det er værd at kikke på alm.brand ved emmisionen, nørresundby bank, kan også blive aktuel på et tidspunkt...Har du nogle danske du kikker på?
18/10 2010 21:10 TeamGarlic 034863 Hej Christophe
Må tilstå, at bankbranchen slet ikke interesserer mig for tiden. Jeg kan frygte for yderligere tab i DK. Omvendt...man skal også passe sin contrarian investor (en fordel ved at lide under personlighedsspaltning
) er, at bankbranchen flere steder i verden er årsagen til, at indeks ikke ligger højere. Hegu har postet fra Norge hér på ProInvestor og jeg har set tilsvarende fra USA andetsteds.
Lad mig uddybe det med tab:
fynske landmænd kan slet ikke handle jord eller gårde, da ingen banker vil være med. Det siger noget om prisstillelsen og om tab, som man ikke ønsker at tage. Amagerbanken og andre har stadig fallenterne til at bebo ejendomme, da man ikke ønsker at tage de endelige tab. Vi snakker rigtig mange penge tror jeg. J.P. Morgan fremlagde tal forleden - fremgang skyldtes alene færre afskrivninger. Dvs. den underliggende forretning giver ikke flere penge. Det hele er likviditetsdrevet og jeg kan godt følge AktieUgebrevet lidt i argumentationen om det hele ikke er godt. Dr. Realist siger det samme om Tyskland og resten af EU har meget brug for Tyskland.
Må tilstå, at bankbranchen slet ikke interesserer mig for tiden. Jeg kan frygte for yderligere tab i DK. Omvendt...man skal også passe sin contrarian investor (en fordel ved at lide under personlighedsspaltning
) er, at bankbranchen flere steder i verden er årsagen til, at indeks ikke ligger højere. Hegu har postet fra Norge hér på ProInvestor og jeg har set tilsvarende fra USA andetsteds.Lad mig uddybe det med tab:
fynske landmænd kan slet ikke handle jord eller gårde, da ingen banker vil være med. Det siger noget om prisstillelsen og om tab, som man ikke ønsker at tage. Amagerbanken og andre har stadig fallenterne til at bebo ejendomme, da man ikke ønsker at tage de endelige tab. Vi snakker rigtig mange penge tror jeg. J.P. Morgan fremlagde tal forleden - fremgang skyldtes alene færre afskrivninger. Dvs. den underliggende forretning giver ikke flere penge. Det hele er likviditetsdrevet og jeg kan godt følge AktieUgebrevet lidt i argumentationen om det hele ikke er godt. Dr. Realist siger det samme om Tyskland og resten af EU har meget brug for Tyskland.
18/10 2010 21:50 colombuss 034865 Sådan set enig. Ejendomsmarkedet stiger jo lige nu i det private, men hvor længe. Og når renten er lavest, hvad er så upside for dem der køber.
Renten er vigtig her, og stiger den, ja så stiger tabene igen....så..
Min hovedkonklusion, er at yes, kan man finde konjunkturlavpunktet, så kan man også 3 doble sine penge i de små banker, og på et tidspunkt, vil de mest risikable være de mest profitable, da de går fra lave valueringer.
Men rammer man ikke bunden, kan de jo godt gå i 0. Og der er immervæk andre typer aktier, der også har potentiale til en 3 dobler, og hvor chancen for at de går i 0, er noget mindre..
Renten er vigtig her, og stiger den, ja så stiger tabene igen....så..
Min hovedkonklusion, er at yes, kan man finde konjunkturlavpunktet, så kan man også 3 doble sine penge i de små banker, og på et tidspunkt, vil de mest risikable være de mest profitable, da de går fra lave valueringer.
Men rammer man ikke bunden, kan de jo godt gå i 0. Og der er immervæk andre typer aktier, der også har potentiale til en 3 dobler, og hvor chancen for at de går i 0, er noget mindre..
18/10 2010 21:56 colombuss 034866 Ugebrev: Realkreditrådet frygter højere renter
Offentliggjort 18.10.10 kl. 07:38
Der kan være udsigt til dårligere vilkår for boligejerne, hvis nye regler bliver vedtaget.
Relaterede artikler
Huskøberne kan ikke følge med
Efterspørgslen på boliglån falder
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Se alle >>
Ifølge et internt notat frygter Realkreditrådet nu for højere renter og kursfald på danske realkreditobligationer - og dermed dårligere vilkår for boligejerne i Danmark. Det skriver Økonomisk Ugebrev.
Rådet frygter, at det bliver konsekvensen af de nye Solvency II regler for kapitaldækning, der er på vej i forsikring og pensionssektoren.
- Reglerne, som kommer til at gælde fra starten af 2013, vil tvinge de danske pensionsselskaber til at sælge ud af danske realkreditobligationer, da de bliver tvunget til at øge spredningen i deres obligationsbeholdning på flere forskellige obligationsudstedere. Forventningen er, at de danske pensionsselskaber i højere grad vil købe udenlandske realkreditobligationer. Men modsat kan man ikke på forhånd forvente, at udlandet køber flere danske realkreditobligationer, skriver ugebrevet.
Tvinges til salg
Pensionsbranchen ejer i dag realkreditobligationer for godt 600 mia. kr. Og stort set alle pensionsselskaber vil blive tvunget til at sælge ud af obligationerne, når de nye kapitalkrav træder i kraft om nogle år.
- Det skyldes, at det dels bliver dyrere for selskaberne at holde obligationerne på grund af kapitalreglerne, men også at selskaberne bliver straffet, hvis de holder for mange obligationer fra det samme realkreditinstitut, forklarer ugebrevet.
Ukendt størrelse
Direktør Ane Arnth Jensen i Realkreditrådet bekræfter, at der fra dansk side arbejdes på at få ændret reglerne, som de ser ud i dag:
- Det står klart, at Solvency II kan blive en stor sten på vejen for hele realkreditsystemet som sådan. Det er ikke helt klart, hvor store og hvor problemerne er, men det undersøger vi lige nu. Vi tror dog ikke på, at nogen har en interesse i at ødelægge et godt system i Danmark, siger hun.
Der arbejdes på flere fronter for at hindre det sker:
Dels arbejdes der på, at sikre danske realkreditobligationer en bedre rating i de nye Solvens regler.
- Men et andet - og måske større problem - er koncentrationsrisiko. Reglerne lægger op til, at pensions- og forsikringsselskaber ikke må placere mere end 15 pct. af deres midler i obligationer fra hver enkelt realkreditselskab - uden at blive straffet økonomisk. I dag er det tal 40 pct, skriver Økonomisk Ugebrev, der vurderer, det kan starte et stort udsalg, hvis branchen begynder at sælge ud af obligationerne for at komme under grænsen - og dermed gøre realkreditmarkedet meget mere afhængigt af udenlandske investorer.
TV: Skal boliglånet lægges om?
TV: Her er de gyldne regler for konvertering
LÆS OGSÅ: Kendt rådgiver: Her er mit boliglån
RB-Børsen
Annoncer fra OpenAdExchange
Offentliggjort 18.10.10 kl. 07:38
Der kan være udsigt til dårligere vilkår for boligejerne, hvis nye regler bliver vedtaget.
Relaterede artikler
Huskøberne kan ikke følge med
Efterspørgslen på boliglån falder
Flere boligejere klarer terminerne
Se alle >>
Ifølge et internt notat frygter Realkreditrådet nu for højere renter og kursfald på danske realkreditobligationer - og dermed dårligere vilkår for boligejerne i Danmark. Det skriver Økonomisk Ugebrev.
Rådet frygter, at det bliver konsekvensen af de nye Solvency II regler for kapitaldækning, der er på vej i forsikring og pensionssektoren.
- Reglerne, som kommer til at gælde fra starten af 2013, vil tvinge de danske pensionsselskaber til at sælge ud af danske realkreditobligationer, da de bliver tvunget til at øge spredningen i deres obligationsbeholdning på flere forskellige obligationsudstedere. Forventningen er, at de danske pensionsselskaber i højere grad vil købe udenlandske realkreditobligationer. Men modsat kan man ikke på forhånd forvente, at udlandet køber flere danske realkreditobligationer, skriver ugebrevet.
Tvinges til salg
Pensionsbranchen ejer i dag realkreditobligationer for godt 600 mia. kr. Og stort set alle pensionsselskaber vil blive tvunget til at sælge ud af obligationerne, når de nye kapitalkrav træder i kraft om nogle år.
- Det skyldes, at det dels bliver dyrere for selskaberne at holde obligationerne på grund af kapitalreglerne, men også at selskaberne bliver straffet, hvis de holder for mange obligationer fra det samme realkreditinstitut, forklarer ugebrevet.
Ukendt størrelse
Direktør Ane Arnth Jensen i Realkreditrådet bekræfter, at der fra dansk side arbejdes på at få ændret reglerne, som de ser ud i dag:
- Det står klart, at Solvency II kan blive en stor sten på vejen for hele realkreditsystemet som sådan. Det er ikke helt klart, hvor store og hvor problemerne er, men det undersøger vi lige nu. Vi tror dog ikke på, at nogen har en interesse i at ødelægge et godt system i Danmark, siger hun.
Der arbejdes på flere fronter for at hindre det sker:
Dels arbejdes der på, at sikre danske realkreditobligationer en bedre rating i de nye Solvens regler.
- Men et andet - og måske større problem - er koncentrationsrisiko. Reglerne lægger op til, at pensions- og forsikringsselskaber ikke må placere mere end 15 pct. af deres midler i obligationer fra hver enkelt realkreditselskab - uden at blive straffet økonomisk. I dag er det tal 40 pct, skriver Økonomisk Ugebrev, der vurderer, det kan starte et stort udsalg, hvis branchen begynder at sælge ud af obligationerne for at komme under grænsen - og dermed gøre realkreditmarkedet meget mere afhængigt af udenlandske investorer.
TV: Skal boliglånet lægges om?
TV: Her er de gyldne regler for konvertering
LÆS OGSÅ: Kendt rådgiver: Her er mit boliglån
RB-Børsen
Annoncer fra OpenAdExchange
18/10 2010 21:59 colombuss 034867 tænk fannie mae, freddie, etc, og hvor sandsynligt det er at det tillades at ha mere en 15% i et realkreditselskab?
19/10 2010 22:06 collersteen 134935 En lille Buffett-artikel jeg faldt over:
http://seekingalpha.com/article/230603-warren-buffett-s-investing-alpha-from-1977-2009-surprising-data
http://seekingalpha.com/article/230603-warren-buffett-s-investing-alpha-from-1977-2009-surprising-data
