In response to the very first question asked at the Berkshire Hathaway annual meeting today in Omaha, Nebraska, Berkshire CEO Warren Buffett mentioned a small California chocolate maker called See's Candies.
Berkshire (BRK-A) acquired See's in 1972 for $25 million. 44 years later, he is still consistently citing it as one of the smartest acquisitions he and his business partner Charlie Munger ever made.
Mary See founded See's Candies 95 years ago using her own recipes. It's a charming little company—the white boxes, with a portrait of Mary See on them, are iconic to See's fanatics. But it is a regional business, with the lion's share of its stores located in the state of California, mostly in Los Angeles and San Francisco. On the East Coast, many candy-lovers still don't know See's.
So, why do these guys love See's so much?
The key is low capital investment. See's doesn't burn a whole lot of money maintaining and replacing equipment from year to year, or worrying about innovating or creating new product; instead, it just continues to grow, slowly and steadily, and earn.
"The ideal business is one that takes no capital, and yet grows," Buffett said at the meeting today. "And there are a few businesses like that, and we own some." See's is one of them.
When Berkshire bought it, See's Candies had roughly $30 million in sales and made just $4.2 million of profit—pennies within the larger portfolio of Berkshire's massive stakes in big corporations. But by 2011, See’s had sales of $376 million, and profits of $83 million.
It was Munger who first told Buffett about See's, and Munger, in turn, had heard about See's from Robert Flaherty, an outside investment counselor at Blue Chip Stamps, which is a trading-stamp company Berkshire had invested in. After Buffett tried See's, he loved the taste (he famously adores sweets, like Coca-Cola and Dairy Queen) and decided they ought to buy it. Munger and Buffett have said, in the intervening years, that they were stingy in their initial offer, but Munger’s friend Ira Marshall convinced him it was worth spending on. “Ira really shamed us,” Munger told me for the Fortune story. “Warren and I were too cheap.”
Brad Kinstler, CEO of See's Candies, told Fortune in 2012, "It’s not even a rounded decimal point in Berkshire’s financials." It's true, but that's not the point. What matters is what See's represents. That is why Buffett and Munger love repeatedly citing it.
See's stands as a symbol of their investment strategy, in a nutshell. Last summer, Berkshire acquired Precision Castparts, and this year, at the meeting, Buffett cited that as a similar acquisition to that of See's. "We would love to find another three or four businesses like Precision Castparts," he said, "but we won't, because they are rare birds."
Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.