2004: Is it ethical to own companies that make unhealthy products, like Coke?

AUDIENCE MEMBER: Hello, there. This is Michael Angelo (PH) from San Francisco.

My general question is about how ethical concerns enter into your asset allocation decisions.

So, for example, I think there’s some strong arguments that can be made that, say, Classic Coke should never be part of anyone’s diet.

If such an argument could be made, and you were convinced of it, would that change the way that you viewed Coca-Cola Company as part of your portfolio?

WARREN BUFFETT: Well, I think that’s a hypothetical that simply wouldn’t happen. I mean, I’ve been drinking five of them a day, you know, and maybe it’s the combination of that and peanut brittle, you know, that does the job. But I just feel terrific. The — (Laughter and applause)

We passed one time on the chance to buy an extraordinarily profitable company, because Charlie and I met the people that ran it. And they were perfectly decent people, too.

And we went down in the lobby of the hotel that we met them in, and we just decided that in the end we didn’t want to be involved in that.

On the other hand, I would have bought stock, as a publicly traded stock, in the same company. Charlie will give you his view on that later.

So, I do not have a problem buying stock in companies — marketable securities — the bonds of companies in the market — that engage in activities that I wouldn’t probably endorse myself.

I would have trouble owning outright, and actually directing the activities, of some of those companies.

But, you know, the — any major retailer in this country is — virtually — is going to be selling cigarettes, for example. And if they’re not declared illegal, it does not bother me to own — it would not bother me to own those retailers outright — or it does not bother me to own the stock.

CHARLIE MUNGER: Yeah, but you wouldn’t buy a company that made the tobacco and concocted the advertisements.

WARREN BUFFETT: No, we — and, you know, I can’t tell you perfectly why that, I mean, I can’t tell you that’s the perfect line, or I can’t tell you precisely why that’s where I draw it. But I will tell you that is where I draw it.

We would not be in the manufacture of it, but I — we owned stock at one time in R.J. Reynolds. Before it had the LBO, we owned bonds in it. And, you know, I would still be doing it if I liked either the bonds or the stock.

We would not buy the manufacturer. And like I say, we walked on one that — and we went down to the hotel to talk about it though, too. (Laughs)

So we’d have to say that we were thinking about it, but we decided not to do it.

Charlie?

CHARLIE MUNGER: We didn’t think very long. The — (Laughter)

We don’t claim to have some kind of perfect morals. You can draw these lines where you wish. But at least we’ve got a huge area of things which is perfectly legal to do, that we think beneath us. So we won’t do them.

And we see more and more in America, a culture where just anything that’s unlikely to send you to prison, which looks like it’ll make money, is OK. And that is a very bad development.

WARREN BUFFETT: Yeah, but I think it’s a little crazy myself — (applause) — to say that it’s terrible if people eat hamburgers, or eat — or drink Coca-Cola, or eat candy, or anything like that, because they’re likely to gain weight. That is a perfectly optional decision.

And who knows whether somebody has lived a happier life, that lives to 75, and they’re overweight condition causes them to die a little sooner than if they lived to 85 and lived on carrots and broccoli, you know, has lived a better life. I know which one I prefer. (Laughter)