The $25 Million Lesson That Made Buffett Billions
- Buffett bought a candy company for $25 million — it has earned him over $2 billion
- This one investment changed how he thinks about value forever
- Key lesson: A great business at a fair price beats a mediocre business at a cheap price
- The secret? Pricing power — See’s raised prices almost every year and customers kept buying
The Investment That Changed Everything
In 1972, Warren Buffett and Charlie Munger bought a little California candy company called See’s Candies for $25 million.
This single purchase transformed how Buffett thinks about investing.
Before See’s: Buffett hunted for bargains — companies selling for less than their assets were worth. The approach was mathematical: buy cheap stuff, wait for the price to go up, sell.
After See’s: Buffett started looking for great businesses, even if they weren’t dirt cheap. He realized something important: a wonderful business at a fair price beats a mediocre business at a bargain price.
The Deal
Here’s what See’s looked like when Buffett bought it:
- Sales: $30 million per year
- Profits: About $5 million per year (before taxes)
- Hard assets (factories, equipment, inventory): Only $8 million
- Purchase price: $25 million
So Buffett paid 5 years’ worth of profits for the whole company. That’s not especially cheap by bargain-hunting standards.
But here’s what made See’s special: those $8 million in assets were generating $5 million in profits every year. That’s a 60% return on the money tied up in the business.
Where else can you earn 60% on your investment? Almost nowhere.
Buffett’s mentor Benjamin Graham taught him to buy companies for less than their assets were worth — like buying a $100 bill for $50.
But See’s didn’t have many physical assets. Its real value was the brand — something that doesn’t show up on a balance sheet.
Buying See’s wasn’t buying assets cheap. It was buying a money-printing machine.
The Negotiation
The See family wanted $30 million. Buffett said $25 million — take it or leave it.
“Buffett offered $25 million and was willing to walk away if the seller demanded a dollar more.”
Fortunately, they agreed. But notice the discipline: Buffett knew exactly what he was willing to pay. Not a dollar more.
Why Munger Pushed for It
Charlie Munger, Buffett’s partner, saw something special that Buffett almost missed:
“See’s has a name that nobody can get near in California… It’s impossible to compete with that brand without spending all kinds of money.”
Munger’s point: Yes, $25 million seems like a lot for a company with only $8 million in physical assets. But the brand was worth far more than any factory.
Think about it: If you wanted to compete with See’s, how much would you need to spend on advertising, store locations, and decades of trust-building? Probably hundreds of millions — and you still might fail.
The brand was the bargain.
The Real Question: Can They Raise Prices?
Everything came down to one simple question: Can See’s charge more without losing customers?
At the time, See’s sold chocolates for $1.95 per pound. Buffett explained the insight:
“If you had taken a box on Valentine’s Day to some girl and she kissed you… See’s Candies means getting kissed. If we can get that in the minds of people, we can raise prices.”
In California, See’s wasn’t just chocolate — it was the gift you bring. When you visit grandma, you bring See’s. When you want to impress a date, you bring See’s. When you say “thank you,” you bring See’s.
That emotional connection is priceless. And it means people don’t switch to cheaper alternatives when prices go up.
Simple math: If See’s raised prices by just 30 cents per pound (from $1.95 to $2.25), profits would nearly double. Customers would barely notice. The $25 million purchase would look like a steal.
The Results (Spoiler: Spectacular)
The results exceeded even the most optimistic projections.
The pricing power worked exactly as hoped:
| Year | Price per pound |
|---|---|
| 1972 | $1.85 |
| 1997 | $8.80 |
| 2007 | ~$12 |
| Today | ~$26 |
Prices went up almost 14x. And customers kept buying.
Volume only grew about 2% per year. But it didn’t need to grow more. When you can charge 14x higher prices, you don’t need to sell more boxes.
The money generated:
- 1972 profits: $5 million/year
- 2007 profits: $82 million/year
- Total profits since 1972: Over $2 billion
All from a $25 million investment. That’s an 80x return — just from the profits, not counting what the business itself is worth today.
Here’s what made See’s so remarkable: it didn’t need much reinvestment.
Buffett only put an additional $40 million back into the business over 50 years. The rest of those billions in profits? He took them out and invested them elsewhere (like Coca-Cola).
A business that generates cash without needing cash is a money machine.
Why This One Investment Changed Everything
Here’s what Buffett said at his 1997 shareholder meeting:
“If we hadn’t bought See’s… we wouldn’t have bought Coca-Cola in 1988. You can give See’s a significant part of the credit for the $11 billion-plus profit we’ve got in Coca-Cola.”
Without See’s, no Coca-Cola investment. And Coca-Cola made Buffett more than $26 billion.
Lesson 1: Brands Are Worth More Than Factories
See’s had no patents, no secret formula, no cutting-edge technology. Just a name people trusted.
That name turned out to be worth more than any factory ever could be.
Lesson 2: Some Businesses Print Money
Most businesses need to reinvest their profits to keep growing — new equipment, more employees, bigger offices.
See’s didn’t. It just kept generating cash that Buffett could invest elsewhere. He calls these “capital-light compounders.”
Lesson 3: Pricing Power Is Everything
If you can raise prices and customers keep buying, you have a real competitive advantage. If you can’t, you’re in a tough business.
See’s proved this year after year, decade after decade.
Lesson 4: Great Beats Cheap
Buffett’s famous summary:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
See’s wasn’t a screaming bargain by traditional measures. But it was wonderful. And wonderful beats cheap over time.
Checking Against Our Framework
Let’s see how See’s stacks up against everything we’ve learned:
Do I understand this business? ✓ Chocolate isn’t complicated. Buy ingredients, make candy, sell to customers. Simple.
Does it have staying power? ✓ A brand built over 50 years can’t be replicated by throwing money at it. Competitors would need decades to build that trust.
Is management trustworthy? ✓ The See family built the business with integrity. The manager who ran it after Buffett bought it maintained that culture.
Does it make real money? ✓ $5 million in profits from $8 million in assets. Chocolate factories don’t need constant expensive upgrades. Almost all the profit was real cash.
Is there a safety cushion? ✓ Paying 5 years of profits for a business earning 60% returns annually. If the pricing power held, Buffett would do great. If it didn’t, he’d still probably be okay.
Is it obviously a good deal? ✓ No spreadsheet needed. A business earning 60% returns, selling at 5x profits, with a beloved brand? That screams “buy me.”
Why It All Worked
See’s succeeded because of a rare combination:
- A brand people love — Built over 50+ years, can’t be copied
- Pricing power — Customers keep buying even when prices go up
- Doesn’t need much money — Almost all profits are real cash to keep
- Dominates its region — #1 in California, where it matters most
- Simple to understand — Chocolate. Not rocket science.
- Fair price — Not a bargain-bin deal, but not overpriced either
Any single advantage might fade. But all of them together? That’s a money machine.
See’s Candies was the investment that transformed how Warren Buffett thinks about value.
The numbers: $25 million invested in 1972 has generated over $2 billion in profits. An 80x return — not from clever trading, but from owning a wonderful business and letting it compound.
The lesson that changed everything: A wonderful business at a fair price beats a mediocre business at a cheap price. Quality compounds. Cheapness doesn’t.
Next up: Part 11 — Coca-Cola. Could the same principles that worked for a California candy company apply to a global beverage giant? See’s taught Buffett how to find out.
References
Buffett, W. (2007). Berkshire Hathaway Shareholder Letter. Berkshire Hathaway Inc.
The Hustle. How a Small Candy Company Became Warren Buffett’s Dream Investment.
Buffett, W. (1998). University of Florida Speech. Quartr.
Various Berkshire Hathaway Annual Letters.
Buffett, W. (1997). Berkshire Hathaway Annual Meeting.
Buffett, W. (1989). Berkshire Hathaway Shareholder Letter. Berkshire Hathaway Inc.