Video Link: https://youtu.be/ce1HBBa06MI
In this episode, Warren Buffett was asked for companies like Coca-Cola and Gillette in which emerging markets does he see the greatest 10-year potential (1999) for unit sales growth? And secondly, does he believe that the U.S. market cap, as a percent of the world’s, at 53 percent, is near its zenith? And which countries does he believe will likely show the greatest percent growth in total market cap?
In this episode, you’ll learn:
What growth in disposable income leads to?
About the golden rule in investing; avoid herd mentality.
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~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
AUDIENCE MEMBER 00:08
Good afternoon and thank you. My name is Paul Worth. I’m from Wichita, Kansas. And my question is as follows.
For the consumer franchise companies that Berkshire owns, Coca-Cola and Gillette in particular, in which emerging markets do you see the greatest 10-year potential for unit sales growth? And what economic, political, or social changes are precipitating that growth?
Secondly, do you believe that the U.S. market cap, as a percent of the world’s, at 53 percent, is near its zenith? And which countries do you believe will likely show the greatest percent growth in total market cap?
WARREN BUFFETT 00:47
Well, I wish I had the answers. The first question, though — obviously, when you’re dealing with something like Coke, is raw numbers. I mean, there’s huge potential in a country, you know — with the largest country in the world, and in China, where the per capita consumption is very, low but is growing very fast.
So it’s very easy for me to predict, and probably be right, absent some tremendous upheaval or some real surprise, that China would be the fastest growth market among countries of any size in the world for Coke from this level.
But that’s based on the fact that you’ve just got a huge number of people that clearly like the product, that are starting from a very low base, and where a lot more bottling infrastructure is going to be needed, but which will be supplied to facilitate that growth.
With Gillette, it’s a little different. People are already shaving. What you do is you upgrade the shaving experience that they have. So you have great differences in the quality of the blades available throughout the world. They call them shaving systems when you get into the more advanced ones.
And what happens is that, as people’s disposable income grows, they are — they trade up. And they get a much more enjoyable shaving experience, and they get better shaves than was the case when they were forced to rely on the lowest-priced product.
But both of those companies have tremendous opportunities as the prosperity around the world — as the standard of living grows.
And there’s just no doubt in my mind that in the blade and razor business for Gillette, which is only a third of their business, but — and in the soft drink business for Coke, they’re going to share in it. It’ll be uneven in the years that it happens and all of that sort of thing.
But I would almost guarantee you that 10 or 20 years from now, both of those companies will be doing a lot more business in their — in those areas I named than currently.
And, you know, it — we don’t fine tune it a lot more than that. I mean, I do not sit and work out — try and work out — country by country, what’s going to happen with a Gillette or Coke. It would be a waste of time. I wouldn’t know the answer anyway.
But I’m pretty sure the conclusion that both of them will prosper a great deal — and I would hate to be competing with either one of them — here or anywhere else in the world. I mean, they have the winning hand.
CHARLIE MUNGER 03:31
Well, I agree with everything you said. And I’d like to add that, if I knew for sure that the United States share of worldwide market capitalization was going to go from 53 percent down to 40 percent, I wouldn’t know how to make money out of that insight by running around buying foreign securities.
WARREN BUFFETT 03:57
Yeah, we just don’t operate on that basis. And, I mean, you know, a few years ago emerging markets were all the rage.
And every institution in the country was getting promoted by somebody who said, “I’m going to run an emerging markets fund.” And they felt they had to participate in it and their advisors told them they had to participate.
We regard that all as nonsense. You know, in the end, you’ve just got to think for yourself about what you know and what you don’t know and go where that leads you.
And you don’t do it by buying into things with names on them, or sectors, or country funds, or that stuff. You know, that’s merchandise that’s designed to sell to people and it’s usually sold to people at the wrong time.
CHARLIE MUNGER 04:40
Yeah. Our game is to find a few intelligent things to do. It’s not to stay up on every damn thing that’s going on in the whole world.
WARREN BUFFETT 04:50
Yeah. Zone 5.