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The Conditioning-Loving Buffett and the Conditioned

October 30, 2011 | About:

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.

About the author:

Dimitar Genchev is a student of value.

Visit dgenchev's Website

Rating: 3.1/5 (16 votes)


Batbeer2 premium member - 5 years ago
>> The next great capital allocator that comes along should skew the allocation to more worthwhile endeavors,

Such as ?

Isn't this why Buffett has donated his wealth to the Gates foundation ?
Paulwitt - 5 years ago    Report SPAM
I like Diet Pepsi!
Jaumepared - 5 years ago    Report SPAM
I barely had time to read this because I was harvesting my low cost Soy Sprouts and walking two miles to the natural spring for delicious free spring water.

TonyB - 5 years ago    Report SPAM
This article is so incoherent I hardly know where to start. GEICO, for example, sells a product that you are legally required to buy if you own a car and competes largely on the basis of price, not "conditioning people to feel great about themselves when they pick it." Coke and See’s Candies can hardly be described as commodity products; their ingredients (water, sugar, cocoa, etc) are commodities, but their branded products are the antithesis of commodities. And the necessity of toothpaste, especially if one consumes Coke and See's Candies, seems too obvious to even mention.

Dgenchev - 5 years ago    Report SPAM
@TonyB: GEICO is a low-cost producer and that's great. Buffett has often emphasized word-of-mouth recommendations as their "best source of new business." Yet they spend around one billion annually advertising this very product that you have to buy anyway and that is no different than the one you can get from the next insurer down the street. I happen to be of the opinion that this is stupid. OK?

Coke is just like other sugar waters. There is nothing special about it. Seriously. Ask Santa.

It's a matter of taste and you don't need a billion dollar budget to figure it out. But you do need it in order to take pride in having millions of dedicated fans all over the world who swear by your drink and yet won't be able to pick it out in a blind test.

The same goes for See's. It's just candy. It's not the best freaking candy in California that will absolutely get you laid on your first date.

We, as a race, can be a bit more mature than that, can't we?

You said it yourself - it's the brand that makes them "the antithesis of commodities." It's all in people's minds, which, I don't argue, is a profitable place to be. I just find it abusive to forcefully hammer your product there.

There must be better uses for all that money. Spend it on research. Educate people. Fund some start-ups. Make the US energy independent. Build Jaumepared a pipe, so he doesn't have to walk two miles to that spring.
TonyB - 5 years ago    Report SPAM
If we fund some start-ups but they don't advertise because advertising is stupid and a waste of money won't the start-ups go out of business due to lack of customers?
Dgenchev - 5 years ago    Report SPAM
First, not all advertising is stupid.

I was talking about commodity products and unhealthy products (I think it would be in our lifetimes when sugar water ads will go the way of tobacco ads.) - stuff that shouldn't be advertised - which are being incessantly pushed on people as something awesome that will improve their lives and make them happy when it will only do so thanks to the ads. If people were not massively conditioned to connect Coke with happy moments, I think hardly anyone would establish the connection on their own. But then KO would be a terrible business and a terrible investment.

Second, start-ups don't have money to lavishly waste on stupid advertising. They mostly rely on word-of-mouth and on attracting and retaining customers through superior service/product. That's my impression.
Dgenchev - 5 years ago    Report SPAM
Recently, I came across this quote from the venerable Charlie Munger that I find relevant to the article:

It’s a new way of getting serfs, and it’s a dirty business. We have financial institutions, including those with big names, extending high-cost credit to the least able people. I find a lot of it revolting. Just because it’s a free market doesn’t mean it’s honorable.

Conditioning is the same enslaving of the (psychologically) "least able people." Actually, it is even more pervasive because it is so subtle.
Dgenchev - 5 years ago    Report SPAM
Gotta love these stories. Congratulations! You've got competitive shopping now.

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