Liquidating limited company
The Buffett partnership’s average share purchase price was .86 reflecting very heavy purchases in early 1965 as Buffett took control of the company in the Spring of 1965.Buffett reported to his partners that at the end of calendar year 1965, Berkshire had a net working capital (without placing any value on plant and equipment) of about per share.It may also have referred to a good price to expected forward earnings but that is not clear. In his 1989 annual letter, Buffett said, under the topic “Mistakes of the First Twenty-Five years”: “My first mistake, of course, was in buying control of Berkshire.In later and in recent years Buffett has said that buying Berkshire was a mistake because back then it was only involved in the textile business. Though I knew its business -textile manufacturing – to be unpromising, I was enticed to buy because the price looked cheap.
There was at least some market value in the property plant and equipment. The book value of .46 per share, at the end of fiscal 1964, can be broken down, on a percentage basis, as follows: Cash 3% Accounts Receivable and Inventory 69% Net Property, Plant and Equipment 27% Other Assets 1% This indicates that the assets which were purchased for 76% of book value were relatively high quality assets.Stock purchases of that kind had proved reasonably rewarding in my early years, though by the time Berkshire came along in 1965 I was becoming aware that the strategy was not ideal.If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible.Why did Warren Buffett Buy Berkshire Hathaway in 1965?On May 10, 1965 Warren Buffett, through his investment partnership, famously took over the management and control of Berkshire Hathaway Inc., a then large but struggling New England textile maker.