“The game of life is a game of everlasting learning. At least it is if you want to win.” — Warren Buffett, 2013
If you want to get rich, follow these four business rules:
1. Buy quality assets (companies, real estate, stocks, etc.) with proven track records. Leave the flavor-of-the-week, flash-in-the-pans for sucker investors!
2. Find a great manager to oversee your assets so you’ll have more time to search for your next opportunity.
3. Never put all your (nest) eggs in one basket, no matter how good one investment seems.
4. Repeat steps 1-3.
Such an investment policy has made Warren Buffett one of the world’s richest human beings.
In 1970, Buffett’s investment vehicle, Berkshire Hathaway, began investing in Blue Chip Stamps, a popular loyalty program that awarded stamps to customers, based on the size of their retail purchases. Licking and entering the stamps into booklets that could be redeemed for merchandise became a nationwide obsession. (I remember accompanying my parents to a redemption store to exchange my Blue Chip Stamps for my first baseball glove, a Larry Sherry model.)
At the time, Buffet thought his investment was the next best thing to minting money. “When I was told that even certain brothels and mortuaries gave stamps to their patrons, I felt I had finally found a sure thing,” he said. Blue Chip Stamps had 1970 sales of $126 million, as about 60 billion “stamps were licked by savers, pasted into books, and taken to Blue Chip redemption stores.” By 1980, however, sales slumped to $19.4 million and by 1990, sales were a minuscule $1.5 million. As computerization developed, less cumbersome loyalty programs were developed.
Even though Blue Chip Stamps was throwing off tons of cash in the early ’70s, Buffett didn’t sit still or stay content. Rather in 1972, he obtained a controlling interest in See’s Candies before later acquiring 100% of the company for $25 million.
In the more than half century that See’s was in business before Buffett gobbled it up like a box of milk chocolate buttercreams, See’s had more than proven itself after opening its first shop on Western Ave. in Los Angeles in 1921.
By the mid-1920s, there were a dozen of the sparkling, black and white shops designed to resemble Mary See’s home kitchen. During the Depression, that number expanded to 30, showing that a powerful business idea and a great product can blossom in any era. By 1936, See’s had expanded to San Francisco. After World War II, the company continued to grow with the arrival of the shopping mall. All the time, customers continued to patronize its stores and products like honey bees returning to the hive.
By investing in See’s, whose slogan remains “quality without compromise,” Buffett had recognized that See’s wasn’t just another business pushing chocolate commodities; it was a unique, proprietary brand that commanded extreme loyalty in the marketplace for which he and consumers would always be willing to pay extra. (What’s a pound of See’s cost today, $20, and we don’t bat an eye paying it!)
At a 1996 luncheon in San Francisco, Buffett’s business partner, Charlie Munger, revealed that See’s was the first high-quality business that Berkshire ever bought. Previously, Berkshire had focused on purchasing undervalued assets on the cheap. The See’s acquisition forever influenced their thinking to buy businesses with a dominant reputation and transcendent brand recognition, even if they had to dig a little deeper into their pockets.
So, it should not come as any surprise that Buffett in a handshake deal in 1983 also bought a majority interest in the Nebraska Furniture Mart. Unfamiliar with the Nebraska Furniture Mart? Well, it just happens to be the largest home furnishing store in North America. Oh, and by the way, the store features See’s Candies, keeping it all in Buffett’s growing empire, of course.
Like See’s Candies, the Nebraska Furniture Mart displayed a knack for spinning off profits in good times and bad, reflecting the old-fashioned values of its Belarus-born founder, Rose Blumkin, who started the business in 1937 on a $500 investment. She worked in the business until age 103.
By comparison, Buffett, who will turn 83 this month (Aug. 30), is a spring chicken whose stock picks are mimicked by savvy investors around the world, and why not! For the second quarter of 2013, profits at Berkshire Hathaway jumped 46%. Over the past 30 years, Berkshire has produced 18.3% annualized returns compared to just 10.8% for the S&P 500.
So, while it may be cool to move like Jagger, it’s also hip (or fly) to invest more like Buffett.
Again, it’s easy: Buy quality, find and put your trust in good managers, and respect your elders (Mary See was 57 when she opened her first See’s Candies with her son Charles).
It also wouldn’t hurt to hang a vintage portrait of your mom in every store as a reminder of who helped give you your start in life! Nothing too fancy … Black & White will do!
See’s the Day,