Warren Buffett’s investment Philosophy: How to win with sugar By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

March 2, 2015 | Posted by bobbysrinivasan << back to blog

In the book barbarians at the gate, Mr. Buffett who was then a director and leading shareholder of Solomon Brothers was asked about the wisdom of bidding for RJR Nabisco, the maker of cigarettes and snack foods. He quipped and I quote

“I’ll tell you why I like cigarette business. It costs a penny to make sell it for a dollar (huge margin). It is addictive and there is fantastic brand loyalty”.

The basic lesson to carry forward is to know what people will buy and how sensitive they are to prices. His investment success is primarily through identifying such similar attributes. Here are some examples.

Mr. Buffet knew that like cigarettes sugar is addictive. In 1972 he acquired See’s candies for $25 million. He has since been quoted as the California sweets a dream business, because it increased profits without much new capital. This way the earned cash, he diverted to other business. Since then he has been acquiring businesses which use sugar as a major ingredient. He bought himself into Coca-Cola, Wrigley a chewing gum and sweet confectionery concern, Heinz the ketchup king as well as the Dairy Queen, the ice cream manufacturer.

Warren Buffett clearly knew that he should be investing in businesses which he understood well. Besides he was also a personal user of all the products that these companies produced. The 84 year old Mr. Buffett has made a great show of his sugar addiction in public such as his love for cherry coke which he drank regularly (putting his mouth where his money is in this case). There was never a need for him to get involved into technologies and since date has not made any significant investment in that sector.

Mr. Buffett besides all his wealth creating activities is a man of deep compassion and love. He has announced that most of the fortunes that he has made overtime will be allocated to charities both in the US and outside.

There are so many lessons one could learn from his life and is business practices.

He saw clearly where the highest margin of profits existed and invested his money in it.
He never worried about risk ( and ) and instead put his money to work in business with the highest level of certainty in outcome.
He always used value investment as his guiding principle.
He didn’t have to become a scientist or a academic researcher to make money of the size that he did.

In summary, the life and the success story of Warren Buffett should open the eyes of a common investor that money making need not be a complicated affair. This is a celebration of his common sense.

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