1997: Does Berkshire invest in tobacco companies?

AUDIENCE MEMBER: My name is Michael Hooper. I’m from Grand Island, Nebraska. I applaud Berkshire for starting the Class B shares.

My question deals with tobacco stocks, which have been beaten down lately. Does Berkshire own any tobacco stocks, and are some of these stocks attractive now that prices are down on some of them? And in particular, a company called UST. Thank you.

WARREN BUFFETT: Yeah. We have owned — we won’t comment on what we own now — but we have owned tobacco stocks in the past. We’ve never owned a lot of them, although we may have made a mistake by not owning a lot of them. But we’ve owned tobacco stocks in the past, and I’ve had people write me about whether we should do it or not.

We own a newspaper in Buffalo. It carries tobacco advertising. We don’t — well, actually, Charlie’s a director of a sensational warehouse chain called Costco, which used to be called PriceCostco. You know, they sell cigarettes.

So we are part of the distribution chain in — with a hundred percent-owned subsidiary in the Buffalo News. And so we have felt that if we felt they were attractive as an investment, we would invest in tobacco stocks.

We made a decision some years ago that we didn’t want to be in the manufacture of chewing tobacco. We were offered the chance to buy a company that has done sensationally well subsequently, and we sat in a hotel in Memphis in the lobby and talked about it, and finally decided we didn’t want to do it.

Can I give you some —?

CHARLIE MUNGER: But it wasn’t because we thought it wouldn’t do well. We knew it was going to do well.

WARREN BUFFETT: We knew it was going to do well.

But now, why would we take the ads for those companies, or why would we own a supermarket, for example, that sells them, or a 7-Eleven, you know, or a convenience store that sells them or something of the sort, and not want to manufacture them? I really can’t give you the answer to that precisely.

But I just know that one bothers me and the other doesn’t bother me. And I’m sure other people would draw the line in a different way.

So the fact that we’ve not been significant holders of tobacco stocks has not been because they’ve been on a boycotted list with us. It just means that overall we were uncomfortable enough about their prospects over time that we did not feel like making a big commitment in them.

Charlie?

CHARLIE MUNGER: Yeah. I think each company, each individual, has to draw its own ethical and moral lines, and personally, I like the messy complexity of having to do that. It makes life interesting.

WARREN BUFFETT: I hadn’t heard that before. (Laughter)

We’ll make him in charge of this decision.

CHARLIE MUNGER: Yeah, no, no. But I don’t think we can justify our call, particularly. We just — we have to draw the line somewhere between what we’re willing to do and what we’re not, and we draw it by our own lights.

WARREN BUFFETT: We owned a lot of bonds at one time of RJR Nabisco, for example, some years back. And should we own the bonds and not own the stocks?

Should we own, you know — should be willing to own the stock but not be willing to own the business? Those are tough calls.

Probably the biggest distributor of — the biggest seller — of cigarettes in the United States is probably Walmart, but — just because they’re the biggest seller of everything. They’re the biggest seller of Gillette products, and they’re huge.

And you know, do I find that morally reprehensible? I don’t. If I owned — we owned all of Walmart, we’d be selling cigarettes at Walmart. But other people might call it differently, and I wouldn’t disagree with them.