A recent post on GuruFocus set me thinking. The article’s title is Warren Buffett Checklist to Invest in a Great Business: KO, but my thoughts went in a rather unpredictable direction. It has to do with Coke and with Buffett, and with investing, but not much with the article.
Here is what triggered me.
It amazes me where civilization has taken us when I read how "toothpastes, biscuits, soft drinks" are things we cannot live without. I am equally amazed when I read about and actually see the lines of people, who got there with their sleeping bags the night before, in front of stores to get the newest gadget for their lives shall be desolate without it.
What sort of monkey behavior is this and where are its roots?
Coca Cola's success was good for Buffett and for other investors, but it certainly doesn't speak well for our civilization of Pavlovian dogs conditioned to connect happiness with sugar water, and not just any sugar water at that but the right one, even if there is absolutely no objective base for differentiation.
There are human qualities, and the ability to reduce ourselves to animals is not one of them, that deserve to be encouraged and developed. The next great capital allocator that comes along should skew the allocation to more worthwhile endeavors, harnessing human potential, than to supplying us with soda pop and chewing gum and making sure we are properly conditioned to be happy with it.
Even the well-conditioned public is getting restless with the feeling that something is not right. They go and occupy stuff, although they are probably still not quite ready to give up the vital toothpastes, biscuits, soft drinks, and gadgets made by their favorite company, the CEO of which is probably from the dreaded 1%, exploits child labor, and is likely funded by Wall Street bankers.
Buffett's other great investment, GEICO, is selling another commodity product by conditioning people to feel great about themselves when they pick it up. Same with See’s Candies.
It certainly is profitable but is it OK to do this?
It can be argued that people are plain stupid and, as sheep, should be properly sheered. But constantly feeding them ads and conditioning them to believe that they can’t live without our toothpaste, biscuits, soft drinks, gadgets and what not is also feeding a vicious self-fulfilling prophecy: people are considered dumb consumers, so they have to be conditioned to link our product with happiness, which really makes them obedient (=dumb in this case) consumers.
Playing to people’s weaknesses for profit is wrong just as a strong guy beating up a weak guy because he can is wrong. Moreover, it is counterproductive for our civilization, because it feeds back into it. Encouraging people to be creative, hard-working, disciplined, and reasonable would start another self-fulfilling prophecy, but this time a virtuous one.
As successful an investor as Buffett is, he is also a huge fan of human conditioning of the type that doesn’t exactly benefit our forward movement. In his letters to shareholders you can read his eulogies of the abovementioned businesses and this one specific trait that makes them so great in people’s minds. Massive advertising in the course of many years to drill in the point that our generic product is way better than their generic product. That’s a great way to spend money. But don’t take it from me, take it from one of the greatest investors of all time. That’s the one expense Buffett is happy to keep rising at those companies.
Next time I'll write an article on why this won't change much in the next million years - psychological biases.