Buffett and Munger's Lessons From See's Candies
In 2020 Warren Buffett said "We've owned that [business] since 1972, and we love it, and we continue to love it.” He was talking about See's Candies, a business they paid $25m for that has paid Berkshire ~$2.4B in profits. Here's why they bought it, and what it taught him.

See's Candies (I will refer to this as See's) is the prototypical Buffett Investment, as it is:

  • Easy to understand

  • Predictable

  • A company with pricing power

  • A company bought with a large margin of safety

Here is how I envision Buffett thinking about See’s:

  1. You find out what it costs to produce a million pounds of candy.

  1. You ask yourself if the brand is strong enough to raise prices at or past the level of inflation.

  1. You find out how much it will cost the business to produce more candy. For instance will this require massive influxes of incremental capital?

If the answer to #2 and #3 are a "yes", and “no”, you move to the easiest step of all:

Sit on your ass collecting cheques.

Berkshire bought See's Candies in 1972, for $25 million. This is a business that's in a low growth industry, around ~4% CAGR looking forward today. I don't know what the market looked like in the 70's but I doubt it was much higher than the current number.

Yet it has made Berkshire piles of money.

According to Insider it's made Berkshire $2 billion in cash which they then re-invested. Mohnish Pabrai estimated See's has delivered $2**.4 billion to Berkshire** since they've owned it.

See's is not a sexy, high growth business. But it's dependable, and prints cash for Berkshire to re-invest elsewhere. Think about it: t**hey paid $25 million dollars for the business and have received $2.4 billion in cash for the privilege of holding onto it!**

The strength of See's is in its brand loyalty.

Buffett and Munger figured that they could raise prices by ~5% each year. Businesses with this kind of brand strength aren’t easy to find. The downside of increasing prices for customers is a questions of maintaining market share. If customers are buying based on price, you will lose market share and revenues will decrease.

But its brand is so strong that they have been able to raise prices like this for decades.

See's barely requires any capital to maintain its business. "The capital required to run the business is $40 m. This means we've reinvested only $32 m since 1972 to handle modest physical growth – and somewhat immodest financial growth – of the business." - Buffett in 2012

The biggest value in See's was what it taught them about quality:

  • They paid > 3x book value

  • Yet ROE was 53%

  • Buffett saw this level of ROE was sustainable

Therefore he evaluated the company on earnings and not book value like he had for his entire career.

He also saw that this business gushed cash that he could reinvest into other opportunities. Other than the major lesson on quality he learned above, there were numerous intangible lessons to be had:

  • It set them up to buy Coca-Cola, a company that did not fit his old framework.

  • It improved their investing acumen by reducing stupidity.

  • Munger has said they were stupid for even thinking of not buying See’s above a certain price.

Given the profits they've made, they could’ve paid multiples of what they paid and it would’ve worked out well for them.

See's helped Buffett evolve in many different facets. His focus moved from Cigar Butts to Quality At Reasonable Prices.These types of investments could be held for long periods of time, which allowed Berkshire to scale. An impossibility given his old framework.

It's hard to say Buffett and Munger are capable of being "stupid," with a straight face. But Charlie has said they would've been stupid for not paying for a quality business like See's.

This drives home one of my biggest takeaways:

You don't need to be smarter than others to get rich.

Just make less stupid mistakes.

And let compounding build your wealth.

If you want a more detailed analysis of See's Candies and the lessons learned please check out my article on Substack:

Let me know which boring businesses have done well for you in the past, or you think will do well in future in the comments below!
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