Warren Buffett, the billionaire CEO of Berkshire Hathaway Inc., has made countless successful investments in his lifetime. But when it comes to his favorite investment, you might be surprised to learn that it’s not a tech giant or a blue-chip company but a small candy business called See’s Candies.
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Despite representing less than 0.1% of Berkshire Hathaway’s holdings, Buffett has repeatedly called it the “prototype of a dream business” and even keeps a box of See's peanut brittle at hand during shareholder meetings.
The $500 million-a-year chocolate chain may seem insignificant in comparison to his larger ventures, but it's one company close to his heart — and his sweet tooth. So, just what makes See’s Candies so special?
Founded in 1921 by a mother and son team, See’s built its brand around small-batch quality and invested in the highest-caliber ingredients. Despite the hardships faced during the Great Depression and World War II, See’s maintained its commitment to quality. It even closed the store each day when inventory ran out rather than sacrificing the caliber of its ingredients.
By 1970, See’s successors were looking for an exit and in Omaha, Nebraska, Warren Buffett made an unlikely offer. Buffett was initially reluctant to invest in See’s, but as he researched the company, he realized that the value of its intangibles far exceeded the numbers on paper. He ended up purchasing See’s for $25 million, which was more than six times its earnings and three times its book value. It was Buffett’s biggest purchase at the time and one of his most successful.
The slow and steady growth of the candy company provided Berkshire Hathaway with a reliable stream of income that allowed it to invest in other attractive businesses. See’s expansion rate of 2% per year may not seem impressive, but its customers were fanatically loyal, allowing the company to raise its effective price per pound by 10% per year. Adjusted for inflation, the candy now sells for about twice its 1972 price, at $22.50 per pound.
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Buffett recognized the value of a company with a long-term competitive advantage in a stable industry, even if it didn’t come with rapid organic growth. In 1982, he rejected a $125 million offer for See’s, which in true Buffett style turned out to be a smart move.
With its steady growth, the company has provided Berkshire Hathaway with an income of over $2 billion, representing a remarkable return of more than 8,000%, or over 160% per year.
See’s Candies serves as a prototype dream company for Buffett as it embodies his investment philosophy of investing in businesses with a long-term competitive advantage, reliable cash flows and a customer-centric approach that values quality over quantity.
The company has weathered the storms of history, from the Great Depression to the pandemic, and its customers remain fiercely loyal. In the words of Buffett, “Price is what you give, value is what you get.”
Long-term investing & startups
In 1970, it wasn’t legal for everyday investors to invest in startups and private companies like Sees. Now, thanks to changes in federal law, anyone can invest in startups on platforms like StartEngine and Wefunder. For example, Gameflip is a startup that has already raised over $1.25 million from everyday investors.
See more on startup investing from Benzinga.
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