Berkshire Hathaway was a textile company that was started in 1888 by Horatio Hathaway. By 1962 Warren Buffett started to buy shares in the company because he believed that it was heavily undervalued and the price of the stock would come up. Buffett gradually increased his share of the company until he owned 49% of the company and used his votes to change the management of the company.
He put Ken Chase in as President to run the company and Buffett, himself, looked after the financial infrastructure of the company. Shares for Berkshire Hathaway were bought by Buffett for $15 a share and were selling at $18.
During this time Buffett began to use Berkshire Hathaway in two roles. Berkshire Hathaway continued to produce textiles as the core business and Buffett used them as an investment vehicle. As time moved on Buffett knew that the industry was struggling against the cheaper foreign production of clothing. Buffett realized that the mills were struggling and kept them open for years past what they probably would have without him. By 1985 the mills of Berkshire Hathaway were not even tentatively profitable and he closed the doors to the textile portion of the business.
At this time Buffett moved from one commodity business to another, insurance. Through Berkshire Hathaway, Buffett eventually acquired GEICO General Insurance Company in 1994, having owned stock in the company since 1943. At the time Buffett acquired GEICO their situation was similar to when he bought Berkshire Hathaway. They were both fundamentally sound companies which were heavily undervalued and Buffett felt that both would do better with him running the financial side of the company.
With Berkshire Hathaway even Buffett could not keep the textile company alive against the flow of textile jobs out of the United States. However, with GEICO his genius was able to shine through. He has helped make GEICO into the third largest insurance company in the country. We all know the green lizard that is their spokesman. GEICO insurance is what it is today because of a failed business investment in the textile industry…Berkshire Hathaway.