Before Musk and Gates, there was a Buffett, one whose legendary career had many eyeing his mind. One of the most successful investors in the world, Warren Buffett, is known for his success with the $1 trillion company, Berkshire Hathaway. At this year’s annual meeting in May, Buffett announced that he wanted to step down as the CEO of the company by the end of the year. Canadian businessman, Greg Abel has been designated as his successor. Once in a 2010 conversation with CNBC’s Becky Quick, he had shared how buying the stock of the company was actually the ‘dumbest thing’ he ever did.
Warren Buffet’s ‘dumbest’ stock purchase
Warren Buffet is going in his last week as the CEO of Berkshire Hathaway, a company that has helped him generate his incredible wealth for the past six decades. Since he took control of the company in 1965, he turned it from a struggling textile company into a global conglomerate. His Class A shares form almost all of his estimated total net worth of $151 billion, putting him in the #10 slot of the Bloomberg Billionaires Index. Considering the success he has had with the company, it was surprising to hear that he called investing in it his ‘dumbest mistake’. “What was the worst trade you ever made and what’d you learn from it?” asked Quick to the CEO. “The — the dumbest stock I ever bought — was — drum roll here — Berkshire Hathaway,” he shared. It was in 1962, when he was running a small partnership of seven million. Berkshire had been “going downhill” for years and the company was closing one mill after another. They were using the money from the mills to buy their stock. Buffett thought of buying the stock at a lower price, selling it back to the company through a tender offer and making a small profit.By 1964, he had quite a bit of the stock and decided to sell them back to the management. While he was promised a price of 11.50 per share, he was offered a lower price later, which made him angry and thus he decided to buy more shares and takeover the company. “11 and three-eighths. He chiseled me for an eighth. 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,” said Buffett.
A trillion dollar entity
The mistake was in the fact that Buffett had committed a huge amount of money to a failing business. In 1967, he bought an insurance company for Berkshire Hathaway rather than selling it and buying one altogether. For 20 years, he fought for the textile business, when doing the alternate would have made the company twice as worth. “And — so there you have it, the story of — a $200 billion,” he said. What to do instead? Well, as per the billionaire, “if you want to be known as a good manager, buy a good business.” ‘When a manager with a reputation for brilliance, meets up with a business with a reputation for bad economics, it’s the reputation of the business that remains intact,’ he wrote in an annual report some decades later.
Warren Buffett’s investing style
One of Buffett’s expertise lies in long-term value investing focused on high quality businesses. While value investing is at the core of the businessman’s investing philosophy, he has often emphasised buying good businesses and not just cheap stocks. As his annual report statement said, it is important to buy stocks with strong fundaments and invest in businesses you completely understand and can transform.