The Early Days of Berkshire Hathaway

Foreign competition, which employed a cheaper labor force, was squeezing profit margins. Second, to stay competitive, the textile mills would require significant capital improvements—a prospect that is frightening in an inflationary environment and disastrous if the business returns are anemic.

Buffett made no attempt to hide the difficulties, but on several occasions he explained his thinking: The textile mills were the largest employer in the area; the work force was an older age group with relatively nontransferable skills; management had shown a high degree of enthusiasm; the unions were being reasonable; and lastly, he believed that the textile business could attain some profits.

However, Buffett made it clear that he expected the textile group to earn positive returns on modest capital expenditures. “I won’t close down a business of subnormal profitability merely to add a fraction of a point to our corporate returns,” said Buffett. “I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect.

Adam Smith would disagree with my first proposition and Karl Marx would disagree with my second; the middle ground,” he explained “is the only position that leaves me comfortable.”1 In 1980, the annual report revealed ominous clues for the future of the textile group. That year, the group lost its prestigious lead-off position in the Chairman’s Letter.


By the next year, textiles were not discussed in the letter at all. Then, the inevitable: In July 1985, Buffett closed the books on the textile group, thus ending a business that had started some one hundred years earlier. The experience was not a complete failure. First, Buffett learned a valuable lesson about corporate turnarounds: They seldom succeed. Second, the textile group generated enough capital in the earlier years to buy an insurance company and that is a much brighter story

AnimeFlix : visit here

Read More: World Fashion and lifestyle Website and also check business web site

Leave a Reply

Back to top button