Berkshire Hathaway's textile business was an investment failure admitted by Warren Buffett, so why did he persist for so long before finally closing it?

Why Did Buffett Admit Berkshire's Textile Business Was a Failed Investment, Yet Persist for So Long Before Closing It?

Berkshire Hathaway was originally a textile company. After Warren Buffett acquired it in 1965, he discovered the textile business had low profitability and even suffered long-term losses. In multiple shareholder letters (e.g., the 1985 letter), he admitted this was a failed investment, yet he only finally shut down the operation in 1985. Buffett’s prolonged persistence can be analyzed from several perspectives, primarily involving investment strategy, sunk costs, corporate management, and personal lessons. Below is a detailed explanation of the key reasons:

1. The Influence of the Sunk Cost Fallacy

Buffett later reflected that he fell victim to the "sunk cost" fallacy: having invested significant capital and effort (including acquisition costs and subsequent capital injections), he was reluctant to abandon the venture easily. In his shareholder letter, he wrote: "We were reluctant to admit failure because it would make us look foolish." This reflects a common psychological bias—continuing to invest in a losing project due to past commitments rather than future prospects.
Despite the textile business facing intense low-cost overseas competition (e.g., from Asian manufacturers) from the outset, Buffett attempted to "rescue" it through improved management and cost-cutting measures, prolonging the decision-making process.

2. Considerations for Employees and Social Responsibility

The textile operation employed thousands; closing it meant mass layoffs. Buffett emphasized his sense of responsibility toward employees, unwilling to hastily dismiss workers or disrupt local economies. In his 1985 letter, he described the closure as a "difficult" decision and provided generous severance packages and reemployment support.
This illustrates Buffett’s "humanistic" management style: he preferred holding assets long-term and prioritized stakeholders over short-term profit maximization. This also explains why he persisted for two decades.

3. A Mindset of Learning and Experimentation

Buffett treated the textile business as a "living classroom." He noted in his letters that it taught him invaluable lessons: avoid wasting resources on sunset industries (like textiles) and instead focus on businesses with competitive advantages. This failure helped refine his investment strategy, emphasizing "economic moats" and avoiding "cigar-butt investing" (buying cheap but low-quality assets).
He experimented with various strategies, such as product diversification, equipment upgrades, and market adjustments, but ultimately recognized the industry’s structural issues (e.g., high labor costs) were irreversible. This experience made him more decisive in subsequent investments, such as swiftly pivoting to insurance and consumer goods.

4. Corporate Origins and Emotional Factors

Berkshire’s roots in textiles carried emotional significance. Buffett initially viewed the acquisition as a value investment opportunity (its stock price was below book value) but overlooked the industry’s decline. The delayed closure partly stemmed from reluctance to "kill" the company’s foundational identity.
However, Buffett finally shut it down in 1985, reallocating resources to more promising ventures like acquiring stakes in The Washington Post and Coca-Cola. This marked Berkshire’s transformation from a "textile company" to an "investment holding company."

Lessons Learned

Buffett repeatedly emphasized in his shareholder letters that this failure was an "expensive education." It reinforced his core investment principles: focus on exceptional businesses and avoid "throwing good money after bad" in failing ventures. Closing earlier might have saved hundreds of millions of dollars, but the experience shaped Berkshire’s path to success. Today, Berkshire has fully transformed from a textile business into a trillion-dollar diversified empire.

Through this case, Buffett reminds investors: admitting mistakes and cutting losses promptly is crucial—never be shackled by sunk costs or emotions. This is why his letters are often regarded as timeless textbooks on investment strategy and corporate management.