Mike Assail (PH) from New York City. Could you explain a little more about what you call the “mind of the consumer” and the “nature of the product” and explain how you actually apply these concepts to find the companies with the growing demand and the best investment potential? And thank you for being two of the greatest professors I’ve ever had. WARREN BUFFETT
Thanks. (Applause) You know, what you really — when you get into consumer products, you’re really interested in finding out — or thinking about — what is in the mind of how many people throughout the world about a product now, and what is likely to be in their mind five or ten or 20 years from now? Now, virtually every person on the globe — maybe, well, let’s get it down to 75 percent of the people on the globe — have some notion in their mind about Coca-Cola. They have — the word “Coca-Cola” means something to them. You know, RC Cola doesn’t mean anything to virtually anyone in the world, you know, it does to the guy who owns RC, you know, and the bottler. But everybody has something in their mind about Coca-Cola. And overwhelmingly, it’s favorable. It’s associated with pleasant experiences. Now, part of that is by design. I mean, it is where you are happy. It is at Disneyland, at Disney World. And it’s at ballparks. And it’s every place that you’re likely to have a smile on your face, including the Berkshire Hathaway meeting I might add. (Laughter) And that position in the mind is pretty firmly established. And it’s established in close to 200 countries around the world with people. A year from now, it will be established in more minds. And it will have a slightly, slightly, slightly different overall position. In ten years from now, the position can move just a little bit more. It’s share of mind. It’s not share of market. It’s share of mind that counts. Disney, same way. Disney means something to billions of people. And if you’re a parent of a couple young children and you got 50 videos in front of you that you can buy, you’re not going to sit down and preview an hour and a half of each video before deciding what one to stick in front of your kids. You know, you have got something in your mind about Disney. And you don’t have it about the ABC Video Company. Or you don’t even have it about other — you don’t have it about 20th Century. You know, you don’t have it about Paramount. So that name, to billions of people, including lots of people outside this country, it has a meaning. And that meaning overwhelmingly is favorable. It’s reinforced by the other activities of the company. And just think of what somebody would pay if they could actually buy that share of mind, you know, of billions of people around the world. You can’t do it. You can’t do it by a billion dollar advertising budget or a $3 billion advertising budget or hiring 20,000 super salesmen. So you’ve got that. Now, the question is what does that stand for five or ten or 20 years from now? You know they’ll be more people. You know they’ll be more people that have heard of Disney. And you know that there will always be parents that are interested in having something for their kids to do. And you know that kids will love the same sort of things. And, you know, that — (Munger accidentally knocks over his microphone) — what’s? (Laughter) He emphasizes the key points when we get to those. (Laughter) But that is what you’re trying to think about with a consumption product. That’s what Charlie and I were thinking about when we bought See’s Candy. I mean, here we were. It’s 1972. You know, we know a fair amount about candy. I know more than when I sat down this morning. (Laughs) I mean, I had about 20 pieces already. (Laughter) But, you know, what — whose, you know — does their face light up on Valentine’s Day, you know, when you hand them a box of candy and say, you know, it’s some nondescript thing and say, “Here, honey, I took the low bid,” you know, or something of the sort, and — (Laughter) No. I mean, you want something — you know, you’ve got tens of millions of people — or at least many millions of people — that remember that the first time they handed that box of candy, it wasn’t that much thereafter that they got kids for the first time or something. So it’s — the memories are good. The association’s good. Total process. It isn’t just the candy. It’s the person who takes care of you at Christmastime when they’ve been on their feet for eight hours, and people have been yelling at them because they’ve been in line with 50 people in line, and that person still smiles at them. The delivery process. It’s the shop in which they get all kinds of things, the treat we give them. It’s all part of the marketing personality. But that position in the mind is what counts with a consumer product. And that means you have a good product — a very good product — it means you may need tons of infrastructure, because you’ve got to have that — I had a case of Cherry Coke awaiting me at the top of the Great Wall when I got there in China. Now that — you’ve got to have something there so that the product is there when people want it. And that happened — in World War II, General Eisenhower, you know, said to Mr. Woodruff that he wanted a Coca-Cola within arm’s length of every American serviceman in the world. And they built a lot of bottling plants to take care of that. That sort of positioning can be incredible. It seems to work especially well for American products. I mean, people want certain types of American products worldwide, you know, our music, our moves, our soft drinks, our fast food. You can’t imagine, at least I can’t, a French firm or a German firm or a Japanese firm having that — selling 47 or 48 percent of the world’s soft drinks. I mean, it just doesn’t happen that way. It’s part of something you could broadly call an American culture. And the world hungers for it. And Kodak, for example, probably does not have quite the same — and George Fisher’s doing a great job with the company. This goes back before that. But Kodak probably does not have the same place in people’s mind worldwide quite as it had 20 years ago. I mean, people didn’t think of Fuji in those days, we’ll say, as being in quite the same place. And, then, Fuji took the Olympics, as I remember, in Los Angeles. And they just — they put them — they pushed their way to more of a parity with a Kodak. And you don’t want to ever let them do that. And that’s why you can see a Coca-Cola or a Disney and companies like that doing things that you think, well, this doesn’t make a hell of a lot of sense. You know, if they didn’t spend this $10 million, wouldn’t they still sell as much Coca-Cola? But, you know, that — I quoted from that 1896 report of Coca-Cola and the promotion they were doing back then to spread the word. You never know which dollar’s doing it. But you do know that everybody in the world, virtually, has heard of your product. Overwhelmingly, they’ve got a favorable impression on them and the next generation’s going to get it. So that’s what you’re doing with consumer products. With See’s Candy, you know, we are no better — we want — no better than the last person who’s been served their candy or the last product they’ve been served. But as long as we do the job on that, people can’t catch us. You know, we can charge a little more for it because people are not interested in taking the low bid. And they’re not interested in saving a penny a bottle on colas. Remember we’ve talked about in these meetings, private labels, in the past. And private label has stalled out in the soft drink business. They want the real thing. And 900 and some odd million eight-ounce servings will be served today of Coca-Cola product around the world. Nine-hundred million, you know. And it’ll go up next year, the year after. And I don’t know how you displace companies like that. I mean, if you gave me a hundred billion dollars — and I encourage if any of you are thinking about that to step forward — (laughter) — if you gave — and you told me to displace the Coca-Cola Company as the leader in the world in soft drinks, you know, I wouldn’t have the faintest idea of how to do it. And those are the kind of businesses we like. Charlie? CHARLIE MUNGER
Yeah. I think the See’s Candy example has an interesting teaching lesson for all of us. Warren said we were — it’s the first time we really stepped up for brand quality. And it was a very hard jump for us. We’d been used to buying dollar bills for fifty cents. And the interesting thing was that if they had demanded an extra $100,000 for the See’s Candy company, we wouldn’t have bought it. And that was after Warren had been trained under the greatest professor of his era, and had worked 90 hours a week. WARREN BUFFETT
And eaten a lot of chocolates, too. (Laughs) CHARLIE MUNGER
Yeah. Absorbing everything in the world. I mean, we just didn’t have minds well enough trained to make an easy decision right. And by accident, they didn’t ask the extra $100,000 for it. And we did buy it. And as it succeeded, we kept learning. I think that shows that the name of the game is continuing to learn. And even if you’re very well-trained and have some natural aptitude, you still need to keep learning. And that brings along the delicate problem people sometimes talk about: two aging executives. (Laughter) I don’t know what the hell that means as an adjective because I don’t know anybody that is going in the other direction. (Laughter and applause) But you people who hold shares are betting, for a while at least, until younger successors come along, you’re betting to some extent on what we’ll now tactfully continue to call “aging executives” continuing to learn. WARREN BUFFETT
Yeah. Well, if we hadn’t have bought See’s, with some subsequent developments after that because that made us aware of other things, we wouldn’t have bought Coca-Cola in 1988. I mean, you can give See’s a significant part of the credit for the, I guess, $11 billion-plus profit we’ve got in Coca-Cola at the present time. And you say, “Well, how could you be so dumb as not to be able to recognize a Coca-Cola?” Well, I don’t know, but — CHARLIE MUNGER
You were only drinking about 20 cans a day. WARREN BUFFETT
Yeah. Right. It wasn’t that I hadn’t been exposed to it, or — (Laughter) It’s amazing. But it just made us start thinking more. I mean, we saw how decisions we made in relation to See’s played out in a marketplace and that sort of thing. And we saw what worked and didn’t work. And it made us appreciate a lot what did work and shy away from things that didn’t work. But it led — it definitely led to a Coca-Cola. And we’ve had the good luck to buy some businesses themselves in their entirety that taught us a lot. You know, we bought — and it’s worked in the other direction. I mean, we were in the windmill business, one time. I was. Charlie stayed out of the windmill business. But I was in the windmill business and pumps and — third-level department — or second-level — department stores. And I just found out how tough it was and how it didn’t — you could apply all kinds of energy to them. And it didn’t do any good. It made a great deal of sense to figure out what pond to jump in. And what pond you jumped in was probably more important than how well you could swim. Charlie? CHARLIE MUNGER
I don’t think it’s necessary that people be as ignorant as we were, as long as we were. (Laughter) I think American education could be better, but not in the hands of any of the people who are now teaching. (Laughter) WARREN BUFFETT
Is there any group we’ve forgotten to offend? I mean — (Laughter)
OK. Zone 2.
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
1. Share of Mind;
"When you get into consumer products, you’re really interested in finding out — or thinking about — what is in the mind of how many people throughout the world about a product now, and what is likely to be in their mind 5 or 10 or 20 years from now?" ~Warren Buffett
2. "Continue to learn even if you are very well-trained and have some natural aptitude." ~Charlie Munger