2022: How did Berkshire transition from textiles to its current form?

CHARLIE MUNGER: Well, I remember when you had a textile mill —

WARREN BUFFETT: Oh, god.

CHARLIE MUNGER: — and it couldn’t —

WARREN BUFFETT: I try to forget it. (Laughs)

CHARLIE MUNGER: — and the textiles are really just congealed electricity, the way modern technology works.

And the TVA rates were 60% lower than the rates in New England. It was an absolutely hopeless hand, and you had the sense to fold it.

WARREN BUFFETT: Twenty-five years later, yeah. (Laughs)

CHARLIE MUNGER: Well, you didn’t pour more money into it.

WARREN BUFFETT: No, that’s right.

CHARLIE MUNGER: And, no — recognizing reality, when it’s really awful, and taking appropriate action, just involves, often, just the most elementary good sense.

How in the hell can you run a textile mill in New England when your competitors are paying way lower power rates?

WARREN BUFFETT: And I’ll tell you another problem with it, too. I mean, the fellow that I put in to run it was a really good guy. I mean, he was 100% honest with me in every way. And he was a decent human being, and he knew textiles.

And if he’d been a jerk, it would have been a lot easier. I would have probably thought differently about it.

But we just stumbled along for a while. And then, you know, we got lucky that Jack Ringwalt decided to sell his insurance company [National Indemnity] and we did this and that.

But I even bought a second textile company in New Hampshire, I mean, I don’t know how many — seven or eight years later.

I’m going to talk some about dumb decisions, maybe after lunch we’ll do it a little.

It is incredible how many dumb decisions we made. Charlie and I bought that — and Sandy Gottesman — we bought that department store, and that was in 1966.

And, you know, we were working with our own money. And why in the world did we think —

And Charlie flew to Baltimore, and I’d fly — I mean, we used to really work in those days. (Laughs)

And, there again, we had wonderful people. Louis Cohen couldn’t have been a better guy.

But everybody in that business had a different reference point. You know, they wanted to expand their company. Well, who can blame them for that? And, you know, they were planning a couple of new stores. And each department — the shoe department said, well, we’ll do it better this time, and all that kind of thing.

But the whole idea was crazy. And we got there for a little while, and we figured it out, finally. And —

CHARLIE MUNGER: We reversed course.

WARREN BUFFETT: Yeah. But why the hell did we do it in the first place? (Laughs)

CHARLIE MUNGER: Well, because we were stupid.

WARREN BUFFETT: Yeah, OK, well — (Laughter)

That’s important to realize. We paid $6 a share for that stock, and if the department store had succeeded, it might be worth, you know, $30 a share now and we’d have — and it failed, so.

But we did other things, and we merged it into Berkshire, and we’ll talk about that a little later.

And, you know, now I don’t know whether it’s — $150,000 a share now, or something like that, from the six bucks. So, if it succeeded, we would have maybe made a few dollars. And because it failed, we made hundreds of thousands of dollars per share.

But that’s the way life is. (Laughs)

You just keep going. And —

CHARLIE MUNGER: And keep learning, that’s the secret.

WARREN BUFFETT: Keep learning.

CHARLIE MUNGER: Keep learning.

WARREN BUFFETT: Keep learning.