Warren Buffett’s Top Plays: #8 Hochschild, Khon

In 1966, Warren Buffett, Charlie Munger, and David Gottesman formed Diversified Retailing by acquiring Hochschild, Kohn & Company, a department store in Baltimore. They invested $6 million of their own capital and borrowed $6 million from two anonymous Wall Street firms, Goldman Sachs and Kidder Peabody. The total cost was 28% of Buffett’s net worth at the time. The department store earned $1.4 million, giving it a P/E ratio of 8.5. However, it turned out to be one of Buffett’s worst investments and was sold for $11 million in 1969. Buffett learned from this experience and later realized the importance of investing in good businesses. He also learned to cut his losses short, a principle that can apply to long-term investing as well.