Textile: An Industry Of Spins And Turns

The sector has a strong presence in The Next 500 list, but its cyclical nature is showing.

- V.Keshavdev

BERKSHIRE HATHAWAY IS a testimony of the costliest mistake made by the world’s greatest investor, Warren Buffett. The reference is not to the $670 billion investment powerhouse of today, but to its avatar in the ’60s. In 1965, enamoured by a deep value bargain in Berkshire Hathaway, then a textiles manufacturer based out of Massachusetts, Buffett took control of the company and kept the business running for 20 years, even acquiring another textile maker Waumbec Mills in 1975. But, in 1985, he pulled the plug on the business and later sold off the company’s 18-acre complex for $215,000. In 2010, Buffett commented in an interview that the current business would have been “worth twice as much as it is now” had he not wasted money in a dying business.

What Buffett’s analysis showed was that though the textile industry kept investing money in capex and technology, returns stayed anaemic. His takeaway was, “If you’re gonna be brilliant with a lousy business, why not be brilliant with a good business?” While Buffett has since moved on, the nature of the textiles business hasn’t changed in all these years — it continues to suck in more capital through its lifetime but rewards investors in short, intermittent cycles.