IV. Taking Control of Berkshire Hathaway (1965–1979)

When Warren Buffett took control of Berkshire Hathaway in 1965, he wasn’t buying a future empire—he was buying a mistake. Berkshire was a dying New England textile mill with poor economics, weak competitive advantages, and no real future. Buffett originally purchased shares because it was cheap, a classic Graham-style “cigar butt.” But the decision eventually became his most important lesson: great businesses outperform cheap ones, and capital allocation matters more than operational turnaround.

The story began as a classic Buffett play: Berkshire was trading below its working capital value. He accumulated shares quietly, expecting to sell back to management at a small profit. But after feeling slighted during negotiations—management offered a lower buyback price than promised—Buffett’s temperament showed. He responded not emotionally, but decisively. He bought enough stock to seize control of the company outright.

Owning Berkshire taught him a painful truth: even a brilliant manager cannot turn a mediocre business into a great one. The economics of the textile industry were too difficult—high labor costs, global competition, shrinking demand. Buffett tried earnestly to save the mills, investing in equipment, improving operations, and seeking efficiency. It didn’t matter. The industry’s structural economics were stronger than any operator.

But here’s where Buffett’s genius showed:
He used the dying textile business as a platform to acquire better businesses.

This is the moment Buffett stopped being a stock picker and became a capital allocator.

He began shifting cash away from textiles and into insurance, a business model he had fallen in love with a decade earlier during his GEICO visit. Insurance offered something no other business could: float—the ability to invest money today that you don’t pay out until later. Float gave Buffett long-term, low-cost capital. It was the fuel that powered Berkshire’s compounding for the next 50 years.

The first major move was acquiring National Indemnity, an insurance company run by Jack Ringwalt. Buffett bought it for $8.6 million in 1967—a turning point so important that Buffett later said it was likely the best investment he ever made. National Indemnity gave Berkshire its first meaningful float, controlled by disciplined underwriting and conservative reserves. Buffett wasn’t skilled in insurance operations; he was skilled in understanding incentives, and he put in leaders who cared deeply about safe underwriting.

Then came the decisive move: buying GEICO stock aggressively in the 1970s, providing support during a time when GEICO was near collapse. Many thought the company was finished. Buffett knew the economics were still intact. He had studied GEICO more deeply than almost anyone alive. This conviction doubled his capital several times over and cemented GEICO as a permanent Berkshire pillar.

Meanwhile, Buffett continued to expand Berkshire’s structure. He bought part of the Illinois National Bank & Trust, began investing in media companies like the Washington Post, and acquired small but high-quality businesses outright—early hints of the acquisition strategy that would later define the conglomerate.

Throughout this era, Charlie Munger’s influence grew. Munger pushed Buffett away from purely cheap companies and toward great companies at fair prices. The message was simple:

“You’re too good to be wasting your time on cigar butts.”
Munger believed that wonderful businesses with durable competitive advantages required fewer decisions, had fewer hidden risks, and compounded internally at higher rates. Buffett resisted at first—he was trained by Graham, after all—but the evidence became overwhelming. Investments like See’s Candies, purchased in 1972 for $25 million, proved Munger right. See’s had pricing power, brand loyalty, and required hardly any additional capital. It became a cash-generating machine for decades.

During the Berkshire takeover era, Buffett made a critical psychological shift:
he realized that being an investor and being a business owner are the same thing.
He no longer wanted to place short-term bets on mispriced stocks. He wanted to own high-quality assets outright, allocate capital across them, and let compounding do the heavy lifting with minimal friction.

By the end of the 1970s, Gatsby Berkshire was no longer a textile company. It was a holding company—quietly becoming one of the most powerful engines of compounding capital in history.

This era marks the moment Buffett became Buffett in the modern sense:

• a long-term business owner

• a disciplined capital allocator

• a buyer of quality, not just bargains

• and a master at using insurance float to magnify returns

The foundation for Berkshire’s trillion-dollar future was laid during these years—not by brilliance, but by discipline, self-correction, and the humility to evolve when the evidence demanded it.