Even the world’s most successful investor makes mistakes. In a stunning irony, Warren Buffett’s most considerable investment blunder wasn’t a bad stock pick or a missed opportunity in tech—it was purchasing the company that would become synonymous with his name: Berkshire Hathaway.
This fateful decision, driven partly by emotion rather than sound business judgment, cost him an estimated $200 billion in opportunity costs over his career based on his own estimates. Yet within this costly error lie powerful lessons for investors of all levels seeking to improve their financial decision-making.
1. The Ironic Purchase: Berkshire Hathaway’s Textile Business
In 1962, Berkshire Hathaway was a struggling textile manufacturer in New England, operating in an industry already steeply declining due to foreign competition and changing consumer habits. The young Buffett initially purchased shares believing he could profit from the company’s practice of closing mills and selling off equipment. He noticed the company would buy back its shares each time they closed a facility, creating what he thought was a predictable pattern he could exploit.
However, the situation took an unexpected turn when Berkshire’s management, led by Seabury Stanton, made Buffett a verbal offer to buy back his shares at $11.50. When the official offer came in writing, the price had been trimmed to $11.375—a mere 12.5 cents less per share. This minor “chiseling” triggered something in Buffett that went beyond rational investment thinking. Feeling insulted and angry, he decided to buy more shares instead, eventually taking control of the company and firing the management.
2. How a Moment of Spite Cost $200 Billion
This emotional decision would prove extraordinarily expensive. In a 2010 interview with CNBC, Buffett himself estimated that buying Berkshire Hathaway and attempting to revive its textile operations cost him approximately $200 billion in opportunity cost over the decades that followed.
For nearly 20 years after taking control, Buffett continued trying to make the textile business viable. He invested in better equipment, tried different management approaches, and attempted to find sustainable niches for the company. All the while, the fundamental economics of American textile manufacturing continued to deteriorate.
Suppose Buffett had instead directed that capital toward insurance companies like GEICO from the beginning (a company he later purchased in full but could have invested in much earlier) or other businesses with stronger economic characteristics; the compounding effect over decades would have been staggering.
The $200 billion figure represents not just money lost in Berkshire’s textile operation but the astronomical growth that same capital could have achieved if deployed in businesses with favorable economics from the start. He could also have just started a new company and named it Buffett-Munger and made it a holding company, then built it into a corporate conglomerate, as he did with Berkshire-Hathaway, and skipped the 20 years of wasted time and capital in the textile business.
3. Buying a Bad Business vs. Buying a Good Manager
This experience led to one of Buffett’s most famous investing principles, articulated in his 1985 letter to shareholders: “When a manager with a reputation for brilliance meets up with a business with a reputation for bad economics, it’s the business’s reputation that remains intact.”
The lesson was clear and painful: no amount of managerial skill can overcome fundamentally flawed business economics. This insight marked a crucial evolution in Buffett’s investment philosophy, moving him away from Benjamin Graham’s “cigar butt” approach (buying cheap, mediocre businesses with a bit of value left) toward Charlie Munger’s quality-focused approach (paying fair prices for excellent companies and enterprises).
After learning this expensive lesson, Buffett began focusing on businesses with sustainable competitive advantages or “moats”—companies like Coca-Cola, American Express, and See’s Candies with pricing power, low capital requirements, and loyal customer bases. These became the investments that would ultimately create Berkshire’s enormous value.
4. The Lesson: Great Managers Can’t Save Poor Economics
The Berkshire textile experience taught Buffett that fundamental economics trump all other factors in long-term business success. Even with his growing reputation as a brilliant capital allocator, Buffett couldn’t overcome American textile manufacturers’ inherent challenges in the latter half of the 20th century.
This lesson completely transformed his investment criteria. He abandoned the search for statistically cheap companies regardless of quality (the Graham approach) and adopted what he would later call “finding wonderful businesses at fair prices.” This shift in philosophy—buying quality first—would define the rest of his career and lead to his greatest successes.
Buffett later advised investors: “If you get into a lousy business, get out of it.” This straightforward wisdom contradicts the sunk cost fallacy that traps many investors, who continue pouring resources into failing ventures because they’ve already invested so much. Buffett learned to recognize when a business had fundamental flaws that no amount of clever management could fix.
5. Mistakes of Omission vs. Commission: The Thumb-Sucking Problem
Beyond the lesson about business quality, Buffett’s Berkshire experience highlighted a distinction he would frequently reference throughout his career—the difference between mistakes of commission (doing something wrong) and mistakes of omission (failing to act when you should).
In a 2001 speech at the University of Georgia, Buffett confessed: “The biggest mistakes we’ve made by far—I’ve made, not we’ve made—are mistakes of omission and not commission.” He described how he failed to invest in Fannie Mae when it was available “for practically nothing” during a period of trouble, estimating that his inaction cost Berkshire at least $5 billion.
Buffett colorfully described this hesitation as “thumb-sucking”—being paralyzed by indecision when an opportunity clearly within one’s circle of competence presents itself. This may be the most valuable lesson for individual investors: hesitation and procrastination on good opportunities can be far more costly than occasional active mistakes.
6. Charlie Munger’s Influence: Don’t Delay Fixing Mistakes
Buffett’s longtime business partner, Charlie Munger, played a crucial role in shaping how Buffett handled mistakes after making them. In Buffett’s 2025 shareholder letter, he highlighted what he learned from Munger about the imperative of quickly addressing errors:
“The cardinal sin is delaying the correction of mistakes or what Charlie Munger called ‘thumb-sucking.’ Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be.”
This transparency about errors stands in stark contrast to typical corporate communication. Buffett noted in the same letter that he used the words “mistake” and “error” 16 times in his annual letters between 2019 and 2023, while “many other huge companies have never used either word over that span.”
This willingness to acknowledge errors quickly and take corrective action has been a hallmark of Buffett’s management style and a key factor in Berkshire’s long-term success despite occasional missteps.
7. How the Mistake Transformed into Success
The story of Buffett’s biggest mistake has a remarkable twist: the very company he regrets buying became the vehicle for his greatest investment successes. After years of struggling with the textile business, Buffet shut it down in 1985, focusing instead on the insurance and investment operations he had built within the Berkshire corporate structure.
The insurance businesses, particularly GEICO and National Indemnity, provided “float”—premium money held before paying claims—that Buffett could invest. This reliable source of nearly cost-free capital became Berkshire’s secret weapon, funding acquisitions of businesses like See’s Candies and Nebraska Furniture Mart and stakes in public companies like Coca-Cola and American Express.
By April 2025, Berkshire Hathaway had grown to a market capitalization of approximately $1.134 trillion, becoming one of the world’s most valuable companies. The corporate shell of the failing textile business became the holding company for one of history’s most successful investment vehicles—an extraordinary example of turning a mistake into triumph through adaptation and learning.
8. What Investors Can Learn from Buffett’s Biggest Error
For everyday investors, Buffett’s Berkshire mistake offers several practical lessons:
- First, avoid emotional decision-making. Buffett’s spite-driven purchase reminds us that investment decisions should be based on rational analysis rather than emotional reactions.
- Second, focus on business fundamentals rather than price alone. The quality and economics of the underlying business matter far more than getting a seemingly good deal.
- Third, recognize when to cut losses. Even Buffett couldn’t save textile operations—some businesses faced insurmountable economic headwinds that no management team could overcome.
- Fourth, acknowledge mistakes quickly and take corrective action. Delaying the recognition of errors only compounds their negative impact.
Finally, understand that occasional mistakes don’t define an investment career. As Buffett wrote in a recent shareholder letter: “Our experience is that a single winning decision can make a breathtaking difference over time… Mistakes fade away; winners can forever blossom.”
Conclusion
Warren Buffett’s biggest mistake—buying and trying to fix Berkshire Hathaway’s textile business—paradoxically led to his greatest business success despite his biggest investing mistake. Buffett transformed a failing textile manufacturer into one of the world’s most successful holding companies by learning hard lessons about business quality, emotional decision-making, and the courage to admit and correct errors.
This mistake’s $200 billion opportunity cost is staggering, yet it created the foundation for investment principles that would ultimately generate far more wealth than was lost. For investors at any level, the story of Buffett’s biggest investing mistake offers reassurance that errors, while costly, can become invaluable teachers on the path to financial wisdom.