Warren Buffett: The Role of Consumer Loyalty and Emotional Connections in Investing

During the 2018 Berkshire Hathaway Annual Meeting, Warren Buffett discusses the importance of investing in companies that create products that engender positive emotional responses (like getting a kiss for giving See’s Candy) versus negative ones. Using Apple’s ecosystem led by the iPhone as an example of such an investment. The mention of American Express and its resilience through the salad oil scandal of 1963 serves to underline the point that companies offering products with deeply entrenched value in consumers’ lives can weather significant challenges. Buffett argues for the significance of emotional value and consumer loyalty in the longevity and resilience of a product or brand, suggesting that these elements can be as critical as the financial aspects when considering investments in companies. Here’s an excerpt from the meeting:

And you know, you offer me RC Cola and say, “I’ll give it to you at half the price of CocaCola,” in terms of drinking it, I mean, just, this is a product that’s 6 1/2 ounces, sold for a nickel in 1900, you know.

And now if you buy it on the weekend and buy it in large quantities and everything, you’re not paying that much more. This newspaper was three cents in 1942, you know. I mean, the amount of enjoyment per real — in terms of the real — of what you pay for this, has gone dramatically down in inflation-adjusted money.

So it is a bargain product. You know, you have to look at — See’s Candy, you know, if you live in California and you were a teenage boy, and you went to your girlfriend’s house and you gave the box of candy to her or to her mother or father and she kissed you, you know, you lose price sensitivity at that point. (Laughter)

So we really want products where people feel like kissing you, you know — (laughs) — rather than slapping you. It’s an interesting thing.

I mean, you know, in effect we’re betting on the ecosystem of Apple products, but — led by the iPhone. And I see characteristics in that that make me think that it’s extraordinary. But I may be wrong. And you know, so far we’ve been — I would say we’ve been right on American Express and Coca-Cola.

American Express had this huge salad oil scandal in 1960 happen — in ’63, November, right around the time [President John] Kennedy was shot. And there was really worry about whether the company would survive. But nobody quit using the card. Nobody quit using the traveler’s checks.

And they charged a premium price for their traveler’s checks. So there are things you can see around consumer products that sometimes can give you a pretty good insight into the future. And then sometimes we make mistakes.

You can watch the entire 2018 Berkshire Hathaway Annual Meeting here: