On Dec. 12, 1962, Warren Buffett first bought shares of a struggling textile mill called Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B). Fifty-six years later, Buffett and his right-hand man, Charlie Munger, have transformed Berkshire into a diverse conglomerate of businesses and investments with a market capitalization of more than a half-trillion dollars.
With that in mind, here's a brief history of perhaps the best long-term investment of all time and the best lesson investors can learn from Warren Buffett's success at the helm of Berkshire Hathaway.
Buffett and Berkshire: A brief history of the most successful value investment of all time
Warren Buffett first invested in Berkshire Hathaway on Dec. 12, 1962, and paid $7.50 for his first shares. At the time, Berkshire was a struggling textile company and wasn't going to make it in its current form for too much longer.
It may surprise you to learn that Buffett never planned to hold Berkshire for a long time. Originally, Buffett saw Berkshire as a value play and nothing more. The company had a cheap valuation, and as it freed up capital when it closed some of its mills, it would buy back shares. Buffett figured this would happen again at some point and that he'd be able to sell at a small profit.
He was right. In 1964, Berkshire's management offered to buy Buffett's shares for $11.50 -- or about 53% more than Buffett had paid for his first shares.
Buffett had every intention to sell until the written tender offer came in at $11.375. He was so irate over management's refusal to honor the original price that in May 1965, he decided to buy enough Berkshire stock to take control of the company. Then he fired the management that had lowered the offer price.
After he took over, Buffett still had no desire to be involved in the textile business on a long-term basis. He decided to use Berkshire as a holding company and ultimately started to acquire insurance businesses. These insurance businesses provided tons of capital to invest elsewhere and allowed Berkshire to grow into the massive conglomerate it is today. To give you an idea of how much Berkshire has grown over the years, Berkshire's Class A shares are worth more than $308,000 each as I write this -- a 4,100,000% gain over Buffett's initial purchase price.
Not a typical Buffett move
Generally, when I write about a Buffett investment, I also talk about the lessons that investors can learn from it. However, this doesn't really apply much to Buffett's investment in and subsequent takeover of Berkshire Hathaway.
I say this because this was not a typical Warren Buffett investment decision. Buffett is notorious for being able to take emotion out of the equation when he invests, but his takeover of Berkshire was solely based on seeking revenge on the company's managers.
In fact, Buffett has even referred to Berkshire as his worst investment of all time. His reasoning is that if he had simply accepted the reduced tender offer and started buying up insurance companies without the anchor of a struggling textile business, he would have made hundreds of billions more for himself and his investors over his career.
Slow and steady can make you rich
Perhaps the most important lesson to learn from the evolution of Berkshire Hathaway is the awesome power of buy-and-hold investing. In his more than half century at the helm of Berkshire, Buffett hasn't invested in many quick home runs. He completely missed out on most of the biggest growth stories of the past 50 years. In fact, most of the businesses Buffett has bought and invested in through Berkshire are considered rather boring by many investors -- insurance companies, bank stocks, manufacturing companies, and similar slow-and-steady businesses.
However, Berkshire's returns have been anything but boring. Just to put things into perspective, a mere $100 investment into Berkshire Hathaway on the first day Buffett bought shares would be worth more than $4 million today. And all of this has been a result of simply buying good businesses to hold on to for the long run.