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Warren Buffett's $100 Billion Mistake


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D'oh! Even WB gets it wrong sometimes.

Warren Buffett's 50th annual letter to Berkshire Hathaway shareholders is out. 

In it, Buffett talks about the company's successes, but also its mistakes. (Mistake #1, in fact,was buying Berkshire Hathaway.)

Buffett's next mistake, however, ended up costing him and his partners $100 billion. 

Here's the deal:

In 1967, Buffett bought Omaha-based insurer National Indemnity Company for $8.6 million. Except instead of buying this company for Buffett Partnership Ltd., Buffett's investing vehicle through which he was investing at the time and which held most of his personal wealth, he bought this company through recently acquired Berkshire Hathaway.

Buffett knew he wanted to be in the insurance business, and he knew the NICO deal would be a long-term success. But how he executed the deal was a huge mistake. 

"Jack Ringwalt, the owner of NICO, was a long-time friend who wanted to sell to me – me, personally," Buffett wrote.

"In no way was his offer intended for Berkshire. So why did I purchase NICO for Berkshire rather than for BPL? I’ve had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal mistake."

And so because Buffett bought this company through his Berkshire holding, and not BPL, NICO became 39%-owned by Berkshire's legacy shareholders, to whom Buffett says he and his partners had no obligation. 

"Despite these facts staring me in the face, I opted to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision that eventually diverted $100 billion or so from BPL partners to a collection of strangers."

Even so: Berkshire's return over the last 50 years?  1,826,163%

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