2008: Does Buffett prefer a smaller, high margin business or a larger, lower margin one?

AUDIENCE MEMBER: Greetings to all of you from the Midwest of Europe, from Bonn, Germany, on the Rhine River. I’m Norman Rentrop. I’m a shareholder in Berkshire, Wesco, and Cologne Re.

I want to thank you and Eitan Wertheimer to take the initiative and the time to come to four cities in Europe, and potentially throughout the world, to tell owners of family businesses what great alternative Berkshire Hathaway is to selling their businesses to buyout funds.

Now, my question regarding the chocolate industry. I’m challenged since I cannot buy See’s Candy in my hometown, Bonn, Germany. You gave that great example of the great business, the good business, and the gruesome business.

See’s Candy, you cited, having sent, like, $1.3 billion in cash profits to Omaha. There’s another company called Lindt and Sprungli.

Now, while See’s Candy achieves more than 20 percent profit on sales, you describe that their growth has been “OK.” Lindt and Sprungli does only 14 percent on sales, but they did go almost global.

WARREN BUFFETT: Yeah. Could you get to the question, please, on this? (Laughs)

AUDIENCE MEMBER: Yeah. The question is in — whether you want to have a company with high profitability but OK growth versus a company going global but lower profits? What are your considerations?

WARREN BUFFETT: It really makes no difference to us. We evaluate all kinds of businesses.

And what we do want is we want a business with a durable competitive advantage, which both of the companies you named do.

And we want something we understand. And we want a management that we like and trust. And then we want a price that makes sense.

And we try to look at — we probably looked at every confectionary business, you know, for 20 years that was publicly owned where we got the figures. And sometimes we find something where we can take action, and most of the time we don’t.

When they’re private businesses, we don’t determine — a really good private business — I always tell the manager, the best thing to do if you’ve got a wonderful private business is just keep it. It’s going to be worth more next year and the year after.

So there’s no reason to sell a wonderful business except for kind of extraneous factors. It may be family situations. It may be taxes. It may be that there isn’t another potential heir or whatever it may be.

But there’s no need — if you’ve got a business worth a billion dollars, you don’t need the billion dollars — you’ve got a business that’s worth a billion dollars — any more than if you’ve got a farm that’s worth a million dollars. You’ve already got the million dollars. You just happen to have it in the farm. And if you like farming, you keep it.

So we never urge people to sell good businesses. We urge them to keep them.

But there comes times when they do want to sell for one reason or another — maybe once every 20 or 50 years — and we do think if they have a business that they’re enormously proud of — it’s a really fine business — that they can keep more of the attributes that they love in that business by selling it to Berkshire than they can, by far, selling it to anyone else.

So we are the logical buyer. As you mention, I’m going to Europe — Eitan, who’s been wonderful about setting this up — and we’re going to make presentations, not to try to get anybody to sell us their business now, because most people shouldn’t sell us their business now.

But we do want them to think of us when the time comes when an event occurs that does cause them to think about selling. And we want to be on their radar screen.

And we’re more on the radar screen in the United States than we are in Europe, and we’re going to try to correct that.

But if you take a firm like you name, a Lindt, you know, there’s a price at which we would buy stock in Lindt. There’s a price at which we’d buy the whole business. But it’s unlikely to be selling there.

You know, the — if you think about hundreds and hundreds of wonderful companies — I get all these managers that — just got a CEO yesterday who called me — and they want to tell me about their business, and they imply their businesses — or they think — their business is the most attractive investment in the world.

It isn’t the most attractive investment in the world. There are thousands of possible investments. And, you know, the idea that all these managers are saying “Our stock is the most wonderful in the world” is crazy.

But it’s our job to look at hundreds of things and, in terms of marketable securities, buy what we think are the most attractive ones, among the ones we understand and like as a businesses.

And then occasionally we get the chance to buy an entire business. We never do that at a bargain price. It just doesn’t happen. People don’t do that. The stock market gives you bargain prices; individual owners won’t. But when we get a chance to do that at a fair price, we like doing it.

We love building Berkshire with a bunch of businesses with favorable long-term economic characteristics.

But the chance that any one of them — you know, we aren’t going to look for a given confectionary company and say, “Regardless of price, we’re going to do this,” because we don’t do anything when the phrase “regardless of price” enters into the sentence.

Charlie?

CHARLIE MUNGER: Yeah. I watched a man build up a business in southern California, which was a wonderful business. And the time came to sell it — and he devoted his whole life to creating it — he sold it to a known crook who was obviously going to ruin the business just because he could get a slightly higher price.

I think that’s an insane way to live a life if you own a prosperous business. I think the better course is to sell to somebody you know is going to be a good steward of what you’ve created. (Applause.)