Buffett’s Genius In The ‘Dying’ Blue Chip Stamps

During his recent interview with Tobias, Chris Mittleman, Founder of Mittleman Brothers discussed Buffett’s Genius In The ‘Dying’ Blue Chip Stamps. Here’s an excerpt from the interview:

Chris: During those years, he was buying pieces of companies in the open market, but he wasn’t buying Berkshire stock. They also were buying Blue Chip Stamps. So, when you think about that period, he was on the board, he, Charlie Munger, and Rick Guerin on the West Coast who had given them the idea. They started buying Blue Chip Stamps in late ’69. This is interesting, because this is one of the reasons why I wanted to do Aimia, is that I had had this fantasy of having a Blue Chip Stamps, a loyalty program with a lot of float that I could invest– [crosstalk] and I thought I’ll never have that happen. It’ll never happen to me, but I just thought someday maybe.

Blue Chip Stamps was one of a couple of these kind of programs. There was S&H Green Stamps, which ended up with Leucadia, and that made them a ton of money. But Blue Chip Stamps was a program that had a lot of float, but it was dying. I don’t think Buffett or Munger, Guerin realized how fast it was going to die. So, from 1969, almost immediately, they lost their biggest customer, which was like Safeway, the grocery store chain, and so the stock got cut in half. They bought more. They built their stake from 10% to 20%, 30%.

Over time, they became a controlling shareholder. And over time, Blue Chip Stamps did very well, despite the fact that their gross billings dropped like 80% during 10 years, and it was all basically just investing the float. So, they took Blue Chip Stamps float, they invested in companies like Pinkertons, the security guard service, they bought See’s Candy. They did a lot of things that ultimately compounded the net worth of Blue Chip Stamps by something like 15%, 16% over the course of 10 years. That was a very good thing for a business that was ostensibly dying.

I think that was kind of what was going on in the 70s there and maybe that was a bit of a distraction for Berkshire shareholders or thing like, “Well, is he with Blue Chips? Is he with us? How does this work out?” Ultimately, they merge the two things. People don’t remember this, but Munger himself was not actually part of the Berkshire family until they merged Blue Chip Stamps into it. Blue Chip Stamps, I think, they got up to 60% of the stock by the late 70s, early 80s, and I think by 1982 or 83, they merged Blue Chip into Berkshire, and in doing so got Munger. So, Munger officially became part of Berkshire in that merger because he had been, I think, chairman or vice-chairman of Blue Chip Stamps. So, it’s interesting, the history. That part of it doesn’t get studied as much. But I think that’s the most interesting part because so many critical decisions made there were ultimately life changing for people that stuck with it.

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