Imagine building one of the greatest fortunes in history, only to look back and say your foundational move was a massive blunder. That’s exactly what one of the world’s most successful investors has admitted about the company that bears his name.
It’s a story that feels almost too ironic to be true. The vehicle behind decades of extraordinary wealth creation was, in his own words, the worst investment decision he ever made. And the cost? Hundreds of billions left on the table.
I’ve always found this confession fascinating because it humanizes someone often seen as infallible in the investing world. It reminds us that even the best make mistakes—and more importantly, they learn from them.
The Deal That Started It All
Picture this: it’s the early 1960s, and a young investor running a small partnership spots what looks like a classic bargain. A once-dominant textile manufacturer is slowly winding down operations, closing mills one by one. Each closure generates cash, which management uses to repurchase shares.
The math seemed straightforward. Buy shares cheaply, wait for another mill closure, tender them back to the company at a profit. Repeat. It was textbook value investing—picking up assets below liquidation value.
Things changed during a face-to-face meeting with the company’s leader. After discussing a potential tender offer, an oral agreement was reached on a price of $11.50 per share. The investor left feeling confident.
Weeks later, the official tender offer arrived. But the price wasn’t $11.50—it was $11.375. Just an eighth of a dollar less, but enough to feel like a deliberate slight.
That small difference triggered an emotional response that altered the course of investing history.
Instead of tendering shares as originally planned, the investor got angry. Really angry. And started aggressively buying more stock—not to make a quick profit, but to gain control and remove the executive who had, in his view, gone back on his word.
By 1965, control was secured. The struggling textile company now belonged to him. What followed was two decades of trying to keep an uncompetitive business afloat before finally shutting it down.
Why Emotion Trumped Logic
In hindsight, the decision seems almost comical. A tiny price discrepancy—worth perhaps a few thousand dollars at the time—led to committing millions to a dying industry out of spite.
But that’s the danger of letting emotions drive investment decisions. What felt like standing up for principle actually created an enormous opportunity cost.
Perhaps the most interesting aspect is how candidly he later described this. No excuses, no rationalization—just straightforward acknowledgment that getting mad and buying control was a terrible move.
- Emotional trigger: feeling cheated by an eighth of a dollar
- Response: aggressive accumulation to seize control
- Outcome: ownership of a fundamentally poor business
- Duration: twenty years spent fighting a losing battle
It’s easy to judge from today’s perspective, but this happened when he was still evolving as an investor. Early influences focused heavily on buying cheap assets, sometimes regardless of underlying business quality.
The Hidden Anchor Dragging Returns
Here’s where the real damage occurred. Once control was gained, subsequent capital deployments had to flow through this textile-laden corporate structure.
When attractive opportunities appeared—like acquiring insurance businesses with excellent economics—they were layered onto a base that included millions in unproductive textile assets earning virtually nothing.
Every dollar tied up in looms and mills was a dollar not fully participating in higher-return activities. Over decades, this compounding drag became enormous.
Conservative estimates suggest that starting fresh without the textile baggage could have roughly doubled the company’s current value. That’s not pocket change—we’re talking hundreds of billions in forgone wealth.
The textile operations acted like an anchor, holding back what could have been even greater compounding.
Think about compound interest as a snowball rolling downhill. Now imagine tying a heavy weight to it. The snowball still grows impressively, but nowhere near its full potential.
I’ve found this analogy particularly helpful when evaluating my own investments. Sometimes we hold onto positions not because they’re great, but because we don’t want to admit we were wrong.
Twenty Years to Finally Let Go
One of the most remarkable parts of this story is how long it took to exit the textile business completely. Despite recognizing relatively early that it was hopeless, operations continued for two full decades.
There were good people working there—honest, hardworking employees who didn’t deserve to lose jobs. New equipment was purchased, additional facilities acquired, synergies chased. But nothing could overcome fundamental economic realities.
Global competition made domestic textile manufacturing unsustainable. No amount of managerial skill could change that basic truth.
- Initial hope: maybe operational improvements would help
- Mergers attempted: buying another mill for supposed advantages
- Equipment upgrades: modern machines to boost efficiency
- Reality check: competition too fierce, margins vanished
- Final decision: complete shutdown after twenty years
This persistence highlights another human tendency: sunk cost fallacy. We’ve invested time, money, and ego into something, so we keep trying to make it work long after rationality suggests quitting.
In my experience, recognizing when to cut losses is one of the hardest but most valuable skills in investing.
The Evolution of Investment Philosophy
What makes this mistake particularly valuable is how thoroughly it reshaped thinking about what constitutes a good investment.
Early career focused on buying cheap stocks—often struggling companies trading below net asset value. The Berkshire experience demonstrated the limits of this approach when the underlying business has poor economics.
Gradually, emphasis shifted toward acquiring wonderful businesses at fair prices rather than fair businesses at wonderful prices. Quality over quantity. Durable competitive advantages over temporary bargains.
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
This philosophical pivot became central to decades of outperformance. Companies with strong moats, excellent management, and predictable earnings growth replaced distressed asset plays.
Interestingly, influence from partners helped accelerate this shift. Some voices advocated for quality businesses from the very beginning, but it took personal experience with a bad one to fully internalize the lesson.
Key Takeaways for Modern Investors
So what can we learn from this expensive education that cost hundreds of billions?
First, emotion has no place in investment decisions. That eighth of a dollar difference seems trivial now, but it altered everything. Staying disciplined when others (or circumstances) provoke us is crucial.
Second, business quality matters more than price paid. A wonderful business bought reasonably will compound wealth far better than a mediocre one bought cheaply.
Third, know when to quit. Holding onto losing positions hoping for turnaround often compounds losses rather than recovering them.
- Avoid revenge trading or investing out of spite
- Prioritize economic moats over asset values
- Be willing to admit mistakes quickly
- Focus on long-term compounding potential
- Separate ego from portfolio decisions
These principles seem obvious in retrospect, but they’re frequently violated even by sophisticated investors. Market history is littered with examples of smart people tying capital to declining industries.
Consider how many once-dominant companies in retail, media, or technology have faded as competitive dynamics shifted. The ability to distinguish temporary setbacks from permanent impairment is invaluable.
The Degree of Difficulty Fallacy
Another insightful observation from reflecting on this mistake: business success doesn’t award points for difficulty.
Unlike Olympic diving where complex maneuvers earn higher scores, capitalism rewards results regardless of effort required. Turning around a terrible business gets no extra credit.
It’s actually smarter to seek easy wins—companies with tailwinds, strong positioning, and minimal need for heroic management.
You don’t get extra points for jumping over seven-foot bars when one-foot bars are available.
This mindset explains preference for simple, predictable businesses over complex turnaround stories. Why fight uphill battles when downhill ones exist?
Many professional investors chase “challenged” companies promising big upside if fixed. Most of these stories end badly. The few successes get disproportionate attention.
Applying These Lessons Today
Current markets offer plenty of opportunities to apply these hard-won insights.
Certain sectors face structural decline similar to textiles in the 1960s. Others enjoy powerful tailwinds from technological or demographic shifts.
Discerning between temporary cyclical weakness and permanent impairment remains critical. So does avoiding emotional responses to short-term price movements.
Perhaps most importantly, remembering that time is the friend of wonderful businesses and the enemy of mediocre ones. Compounding works best when capital stays deployed in high-quality enterprises.
Even with the textile anchor, the overall record remains extraordinary. Imagine how much greater it could have been without that early misstep. That’s both sobering and motivating.
Every investor makes mistakes. What separates the great ones is willingness to learn deeply from them and adjust accordingly. This particular error, costly as it was, helped forge one of the most successful investment philosophies ever developed.
In the end, maybe it wasn’t such a bad mistake after all—if viewed through the lens of education purchased at a very high price. But I’d still rather learn these lessons from someone else’s experience than my own portfolio.
The irony that the “worst” investment became the foundation for legendary success adds a final layer of fascination to this story. It shows how even serious errors can lead to positive outcomes when we extract the right lessons and apply them consistently over decades.
That’s the real power of reflective honesty in investing.
