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Collection: Warren Buffett - #213 'Product Liability'


Video Link: https://youtu.be/dH92jlFEyg4


In this episode, Warren Buffett was asked does selling discretionary products of questionable healthfulness reduce the intrinsic value of Coca-Cola, See’s Candies, Dairy Queen, or any other business?


In this episode, you’ll learn:

  • Warren Buffett thoughts on product liability involving sugar.

To check out all Collection: Warren Buffett <click here>

[Transcript]

(Source: https://buffett.cnbc.com/2001-berkshire-hathaway-annual-meeting/)

~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

AUDIENCE MEMBER 00:00

My name is Joseph Lapray (PH). I’m from Minneapolis, Minnesota.


In recent years, tobacco companies have been compelled to pay large damages for marketing their unhealthy, but discretionary, products. My question has two parts.


First, does the potential for similar damage liabilities reduce the intrinsic value of Coca-Cola, See’s Candies, Dairy Queen, or any other business, which sells discretionary products of questionable healthfulness? Not that I don’t like these products.


And second, are either of you concerned that a possible erosion in the principle of caveat emptor is undermining the legal basis of contracts, in general? Thank you for taking my question.


WARREN BUFFETT 00:56

Well, the products you described, I’ve been living on for 70 years, so — (Laughter) — they’ll probably haul me in as a witness if I — that they don’t do much damage.


No, I think, if — you know, if you’re opposed to sugar and the — I think the average human being eats something like 550 pounds dry weight of food a year. And I think 125 pounds, or thereabouts — I’d have to look at it — it consists of sugar in one form or another.


I mean, it’s in practically every product that you have, and happens to be in Coca-Cola, it happens to be in See’s Candy, but it’s in practically everything you’re — I mean, it’s over 20 percent of what Americans are consuming, one way or another.


And, you know, the average lifespan of Americans keeps going up. So, I would not be worried at all about product liability in connection with those companies.


But product liability, generally, is an area that is a fertile field for the plaintiff’s bar. And it’s — we are conscious in buying into businesses, and we have passed up some businesses, because we were worried about the product liability potential.


Unless there is some legislative solution, I think you will see more and more of the GDP going into liability awards. And whether there will be any change by legislation, I don’t know. But, you know, it’s a big field.


And the lottery ticket aspect of it is so attractive. Because if an attorney can gamble a modest amount of time, or even a reasonable amount of time, and have a potential payoff of 10, or 20, or maybe, in some cases, hundreds of millions of dollars, you know, that’s a decent lottery ticket. Who knows what 12 people, you know, are going to be on the jury?


As one of my friends who’s a lawyer said, you know, he said, “Lincoln said, ‘You can fool all of the people some of the time, and all of the — some of the people all of the time, and all of the people some of the time, but not all of them all the time.’” He says, “I’m just looking for 12 that you can fool all of the time.” You know, and — (Laughter)


You know, and all you have to do is get an award. And the odds are fairly favorable in a nation where lots of zeros have sort of lost meaning to people. So it’s a very real concern in any business we get into, in terms of trying to evaluate product liability.


Charlie?


CHARLIE MUNGER 03:33

What’s particularly pernicious is the increasing political power of the plaintiff’s contingency, the bar.


If you’re on a state Supreme Court, for — in most places, you’re on for life. If you — at least, you’re on for life if you want to stay for life.


And the one thing that could get you off the court would be to really irritate some important group. And I think that greatly helps a lot of abusive conduct in the courts.


I think the judges of the country haven’t been nearly as tough as they should be on junk science, junk economic testimony, trashy lawyers. And I don’t see — (Applause) — and I don’t see many signs that it’s getting better.


In Texas, they actually improved the Supreme Court of Texas, which really needed it. So, there are occasional glimmers of life.


WARREN BUFFETT 04:48

We make our decisions in insurance and in buying businesses with a very pessimistic attitude toward the chances of that particular ill that Charlie described being even moderated.


I mean, we think if — we would project out that the trend would accelerate, but that’s just our natural way of building in a margin of safety in decisions.


Don’t worry about eating the See’s candy, or the Dairy Queen, or the Coke.


You know, if you read the papers long — I use a lot of salt, and, you know, I was always being warned about that. And then, you know, few years ago they started saying, “You know, you can’t get enough salt” and all that. I don’t know what the answer is, but I feel terrific. (Laughter)


Zone 7. (Applause)

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