Warren Buffett’s acquisition of Berkshire Hathaway (BRK.B) (BRK.A) still stands as one of the most remarkable corporate turnarounds in American history, even with Buffett himself often calling it a mistake and his worst investment ever. In his 2024 annual letter, Buffett reflected candidly on the company’s origins, the costly missteps that shaped its early years, and the unlikely ascent that followed:

“Sixty years ago, present management took control of Berkshire. That move was a mistake – my mistake – and one that plagued us for two decades,” Buffett said. 

Obviously, there’s a happy ending to the story now, but it was a massive blunder very early in his career. The purchase did allow Buffett to make a number of notable acquisitions over the years, ultimately turning the business around. But it certainly serves as a living reminder of the many lessons Buffett has learned over the years. 

From Textile Mill to Investment Powerhouse

Berkshire Hathaway was originally formed in 1955 through the merger of two struggling New England textile companies: Berkshire Fine Spinning Associates and Hathaway Manufacturing Company. By the early 1960s, the company had closed multiple plants and was fighting a losing battle against cheaper foreign imports.

Buffett, then a young investor running Buffett Partnership Ltd., began buying shares in 1962 at around $7.50 each, attracted by the company’s undervalued assets rather than its earnings potential. His initial plan was to profit from share buybacks as the mills closed, but a dispute with then-chairman Seabury Stanton soured the relationship. When Stanton offered to buy Buffett’s shares at a slightly lower price than promised, Buffett, out of frustration, bought more shares to take control of the company in 1965.

This decision, Buffett later admitted, was driven more by emotion than rational analysis. “That was a monumentally stupid decision,” he wrote, noting that the textile industry was already in irreversible decline. The business continued to struggle, and in 1965, Berkshire did not pay any federal income tax — a fact Buffett described as an embarrassment for a once-proud industrial firm.

The Worst Investment Ever

Buffett has repeatedly called the Berkshire Hathaway purchase his biggest investment mistake. He has estimated that had he invested directly in insurance or other growth industries instead, the returns would have been several hundred times greater. The textile operations limped along for two more decades before finally closing in 1985.

Despite this inauspicious start, Buffett’s approach to capital allocation changed the company’s destiny. Using Berkshire’s remaining cash and assets, he began acquiring insurance companies, starting with National Indemnity in 1967. Insurance provided a steady stream of “float” — money held temporarily from policyholders, which Buffett could invest elsewhere. This strategy became the foundation for Berkshire’s transformation into a diversified conglomerate, with major holdings in companies such as Apple (AAPL), Coca-Cola (KO), and American Express (AXP).

Reflections from the 2024 Letter

In his 2024 letter, Buffett recounted this history with characteristic humility and candor. He described the early years as “plagued” by his initial mistake and credited his business partner, the late Charlie Munger, for immediately spotting the error. Buffett also highlighted Berkshire’s extraordinary turnaround: from a company that paid no taxes in 1965 to one that paid $26.8 billion in federal income tax in 2024 — about 5% of all U.S. corporate income tax collected that year.

Buffett attributed this remarkable shift to a disciplined reinvestment strategy. Berkshire shareholders received only one cash dividend in 1967, allowing the company to compound its capital and grow its taxable income over decades. Cumulatively, Berkshire has now paid over $101 billion in federal income taxes, a testament to its enduring success and Buffett’s long-term vision.

Enduring Lessons

Berkshire Hathaway’s journey under Buffett is a story of resilience, adaptability, and the power of learning from mistakes. What began as a rough decision ultimately became the launchpad for one of the world’s most successful investment empires. Buffett’s reflections serve as a reminder that even the greatest investors are shaped by their errors — and that the willingness to adapt can turn setbacks into historic achievements.