Warren Buffett's $200 Billion Berkshire Hathaway Mistake

On May 6, 1964, a letter arrived for the investors of Berkshire Hathaway, a struggling textile maker in Massachusetts. The company offered to buy back 225,000 of its shares at $11.375 each.

One of those investors was a 33-year-old money manager in Omaha named Warren Buffett. He had been expecting the letter. He had not been expecting the price.

A trade, not an investment

Buffett had started buying Berkshire for his investment partnership in 1962, at about $7.50 a share. It wasn’t a vote of confidence. Berkshire was a northern textile company in a dying industry, losing ground to mills in the American South. It kept closing plants, and with the money from each closure it bought back its own stock.

That was the whole trade. Buffett would buy shares cheaply, wait for the next buyback, and sell them back to the company at a profit.

Shortly before the 1964 offer, Berkshire’s president, Seabury Stanton, asked Buffett at what price his partnership would sell. Buffett told the story in his 2014 letter to shareholders: he answered $11.50, and Stanton said, “Fine, we have a deal.”

Then came the letter. The price was $11.375, an eighth of a point, or 12.5 cents, less.

The decision

At $11.375 the partnership would still have made a profit of about 50% on its original purchases. Buffett could have taken the money and moved on.

He didn’t. “I bristled at Stanton’s behavior and didn’t tender,” he wrote fifty years later. “That was a monumentally stupid decision.”

Instead he began buying more Berkshire stock, aggressively. By 1965 Buffett controlled the company. Stanton and his son left. Buffett had won the argument, and with it a textile business that, by his own account, he knew very little about. The mill that had been a short-term trade now held more than a quarter of his partnership’s capital.

Twenty years of looms

Buffett tried to make the textile business work. It didn’t. The economics of New England cloth making were poor, and getting worse. Capital spent on the mills earned little.

What saved Berkshire was what Buffett did with the rest of its money. In March 1967 the company bought National Indemnity, an insurance firm in Omaha, for $8.6 million. Insurance gave Berkshire something the mills never could: a steady flow of cash, called float, that Buffett could invest. More insurers and more businesses followed. The textile company became a holding company that happened to own some textile mills.

The mills hung on far longer than they should have. Berkshire finally shut its last textile operations in 1985, more than twenty years after the dispute that brought Buffett in.

The $200 billion estimate

In 2010 CNBC’s Becky Quick asked Buffett about his worst investment. His answer, delivered with a laugh: Berkshire Hathaway itself.

His reasoning was about the cost of the detour. The money he had poured into the textile business could have gone straight into insurance from the start. Had it done so, he told CNBC, the company would have been worth roughly twice as much as it was then. Berkshire’s market value at the time was a little over $200 billion, so the mistake, by his arithmetic, was about $200 billion in compounded returns lost over 45 years. “Because the genius here thought he could run a textile business,” he said.

His lesson was blunt: if you get into a lousy business, get out of it.

What Berkshire became

The irony, of course, is that the “mistake” became one of the most successful companies in history. Buffett never split the original Class A shares, which his partnership had bought for a few dollars each. On August 28, 2024, with the shares trading close to $700,000 apiece, Berkshire became the first company in the United States outside the technology industry to be worth $1 trillion. A single share cost more than the typical American house.

The insurance float that rescued Berkshire from its mills became its engine. Over the decades the company bought Geico, the BNSF railroad, utilities, Dairy Queen, Duracell and dozens of other businesses, and built a stock portfolio worth hundreds of billions of dollars. In the autumn of 2025 it reported a record $381.7 billion in cash and short-term investments.

The handover

On May 3, 2025, in the last minutes of Berkshire’s annual meeting in Omaha, Buffett surprised his shareholders. He said he would ask the board to replace him as chief executive at the end of the year. The board agreed unanimously the next day. Greg Abel, who had run Berkshire’s energy business and then all of its non-insurance operations, took over on January 1, 2026. Buffett, then 95, stayed on as chairman and said he would keep coming to the office in Omaha every day.

He had run the company for sixty years. It had started with an argument over 12.5 cents.

What the record shows

• Anger is expensive. Buffett turned down a 50% gain over 12.5 cents, and by his own estimate it cost $200 billion in what might have been.
• Price doesn’t fix a bad business. Berkshire was cheap because textiles were in decline. Being cheap didn’t make them a good investment.
• What you do with the cash matters more than where it comes from. The insurance money Buffett invested, not the mills, built the company.
• Know when to quit. Even Buffett kept a failing business going for twenty years. His advice afterward was to get out of a bad business quickly.

Other stories in this archive show the same tension between a business and its money. Bubble Wrap became a small part of a much bigger company. McDonald’s found its fortune in the land under its restaurants. Berkshire found its fortune by leaving the business it was named for.