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ENTITY
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Ken Chace

Origin of Relationship

Ken Chace was already in place as the President of Berkshire Hathaway Inc.'s textile division when Warren Buffett's investment partnership acquired control in 1965. Buffett chose to keep Chace and his existing management team in place rather than bringing in outside executives.

Major Milestones

  • 1965: Retained as President of textile operations, managing the remaining mills in New Bedford, Massachusetts.
  • 1970: Managed the mills through a severe industry contraction, working diligently to prevent inventory buildup and finishing at break-even. Buffett praised his effort as "swimming against a strong tide."
  • 1971: Reorganized the sales force and adjusted the product mix to take advantage of a mild industry pickup, returning the textile operation to profitability in 1972.
  • 1975: Integrated the assets of Waumbec Mills Incorporated (acquired in April 1975) into Berkshire's Home Fabrics division.
  • 1979: Continued to run the textile mills with high dedication despite the industry tide running heavily against the company.
  • 1985: Managed the orderly wind-down and permanent closure of the textile operations on July 10, 1985, ending a 20-year era.

Strategic Importance

Ken Chace occupies a legendary position in Berkshire Hathaway lore. He is the ultimate example of an outstanding manager stuck in a structurally flawed business. Despite Chace’s intelligence, work ethic, and operational competence, the textile operations could never earn high returns on capital.

His struggle against cheap foreign imports and industry-wide overcapacity taught Buffett two of his most critical investment principles:

  1. Tailwinds vs Headwinds: A manager's results are dictated primarily by the economics of their industry. Excellent management in a bad business will yield poor results, while average management in a good business can yield excellent results.
  2. Redeployment of Capital: Rather than reinvesting depreciation cash flows back into the textile mills, Buffett redeployed that capital to purchase insurance and banking businesses, creating the modern Berkshire conglomerate.

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