Why buying Berkshire was Warren Buffett’s biggest mistake

(This is the Warren Buffett Watch newsletter, news and analysis on all things Warren Buffett and Berkshire Hathaway. You can sign up here to receive it every Friday evening in your inbox.)

Warren Buffett is going into his last week as CEO of Berkshire Hathaway, the vehicle he has used to generate incredible wealth for himself, and for the company’s loyal longtime shareholders, over the past six decades.

Since he took control in 1965, Buffett has transformed a struggling textile company into a massive conglomerate worth more than $1 trillion.

His Class A shares account for almost all of his estimated total net worth of $151 billion, which puts him in the #10 slot of the Bloomberg Billionaires Index.

He would be No. 22 on that list with roughly $359 billion if he held onto the hundreds of thousands of Berkshire B shares, currently valued at $208 billion, that he’s been giving away since 2006, with more donations to come.

Given all the success he’s had with the company, it may be surprising to hear him call Berkshire “the dumbest stock I ever bought” … a blunder that has cost him hundreds of billions of dollars.

From the deep recesses of CNBC’s Warren Buffett Archive, here’s a rare clip of Buffett in 2010 with an in-depth explanation for Becky Quick of why he never should have bought Berkshire Hathaway and the important lesson he learned from his costly mistake.

BECKY QUICK: All right.  Warren, thank you very much for joining us today.

WARREN BUFFETT: My pleasure.

BECKY QUICK: What we’re trying to get to the bottom of is what was the worst trade you ever made and what’d you learn from it?

WARREN BUFFETT: The dumbest thing I ever did?  (LAUGHTER)

BECKY QUICK: Yeah, the dumbest thing you ever did.

WARREN BUFFETT: The — the dumbest stock I ever bought — was — drum roll here — Berkshire Hathaway. And — that may require a bit of explanation.  It was early in — 1962, and I was running a small partnership, about seven million. They’d call it a hedge fund now.

And here was this cheap stock, cheap by working capital standards or so. But it was a stock in a — in a textile company that had been going downhill for years. So, it was a huge company originally, and they kept closing one mill after another. And every time they would close a mill, they would — take the proceeds and they would buy in their stock. And I figured they were going to close; they only had a few mills left, but that they would close another one. I’d buy the stock. I’d tender it to them and make a small profit.

So I started buying the stock. And in 1964, we had quite a bit of stock. And I went back and visited the management, Mr. (Seabury) Stanton. And he looked at me and he said, ‘Mr. Buffett. We’ve just sold some mills. We got some excess money. We’re going to have a tender offer. And at what price will you tender your stock?’

And I said, ‘11.50.’ And he said, ‘Do you promise me that you’ll tender at 11.50?’ And I said, ‘Mr. Stanton, you have my word that if you do it…