Warren Buffett's success in business is well chronicled and
nearly unparalleled. But you may not know he attributes a healthy
dose of his success to a candy shop in California you may never
have heard of.
Source: The Motley Fool.
In 1972 See's Candies was purchased for $25 million by Buffett
lieutenant Charlie Munger through Blue Chip Stamps, a business
controlled by Buffett and Munger.
Although Blue Chip Stamps has faded into obscurity as
Americans stopped buying stamps, Buffett has gone on to say that
See's Candies is actually his "dream business."
Source: The Motley Fool at 2014 Berkshire Hathaway Annual
So what has made See's so successful? First, although it
hasn't been a world-beater in growing its sales, it has been
incredibly profitable and a cash-generating machine. From
1972-2011 it contributed a staggering $1.65 billion to the bottom
line of Berkshire.
Knowing it brings in roughly $85 million annually in pre-tax
profits, there will soon come a day when the total contribution
of See's to Berkshire will top $2 billion. And what has Berkshire
done with all that cash?
In 2007 Buffett answered that very question by revealing,
"After paying corporate taxes on the profits, we have used the
rest to buy other attractive businesses."
Undoubtedly Buffett is thankful for the financial contribution
See's has made to Berkshire.
But it turns out through See's Candies, he learned something
Buffett was very much an avid devotee of the value-investment
philosophy predicated in the teaching of his former professor,
boss, and mentor, Benjamin Graham. Graham spoke to the
inefficiencies rooted in financial markets, and how there were
always bargains to be had that Wall Street overlooked.
But thanks to his friendship with Munger, Buffett's mind-set
on investing began to shift. Instead of seeking great bargains,
Munger continued to tell Buffett about to the need to find great
. A 1988 article in Fortune Magazine
So in conversations with Buffett over the years [Munger]
preached the virtues of good businesses, and in time Buffett
totally accepted the logic of the case. By 1972, Blue Chip
Stamps, a Berkshire affiliate that has since been merged into
the parent, was paying three times book value to buy See's
Candies, and the good-business era was launched. ''I have been
shaped tremendously by Charlie,'' says Buffett. ''Boy, if I had
listened only to Ben, would I ever be a lot poorer.''
Graham's teaching doesn't run contrary to this -- he said,
"Investment is most intelligent when it is most businesslike" --
but it also wasn't the principle focus. And through Munger and
the resulting acquisition of See's Candies, this insight was all
the more affirmed.
When asked about See's Candies at the Berkshire Hathaway
Annual Meeting this year, both Warren and Munger chimed in on how
grateful they were for buying it more than 40 years ago:
Buffett: "See's has provided us with lots of cash for
acquisitions and opened my eyes to the power of brands. We made
a lot in
partly because of See's. There's something about owning one
[brand] to educate yourself about things you might do in the
future. I wouldn't be at all surprised that if we hadn't owned
See's, we wouldn't have bought Coca-Cola."
Munger: "There's no question about the fact that See's main
contribution to Berkshire was ignorance removal. One of the
benefits of removing our ignorance is that we grew into what we
are today. At the beginning, we knew nothing. We were stupid.
If there's any secret to Berkshire, it's that we're pretty good
at ignorance removal."
The 400 million shares of Coca-Cola Berkshire now owns cost
$1.3 billion to acquire between 1988-1994, but at the end of
September they were worth a remarkable $17.1 billion. And that is
to say nothing of the billions worth of dividends Berkshire
received over the last two and a half decades.
Source: Flickr / Bob n Renee.
Buffett openly admits none of that would've likely been
available to Berkshire (and its shareholders) were it not for
See's Candies. As a result, it is clear the benefit of See's
extends well beyond the $2 billion contribution it has made to
the bottom line.
What this reveals
Examples like this show us how we must always seek to learn from
things both great and small, and give great credence to the
Proverb "Let the wise hear and increase in learning."
Few would guess a small candy shop would've taught Buffett so
Above all, this story reminds us to always be thankful of
those things great and small, because we never know where they
shall lead us.
Warren Buffett: This new technology is a "real threat"
While Warren Buffett is thankful for See's Candies, there's one
business he isn't thankful for, and he's actually terrified of
it. But Buffett's fear can be your gain. At the
recent Berkshire Hathaway annual meeting, Buffett
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biggest cash-cow.However, only a few investors are
embracing this new market, which experts say
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The Surprising Lessons Warren Buffett Learned
from a Candy Company
originally appeared on Fool.com.
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