2005: How did you decide to invest in Anheuser-Busch?

AUDIENCE MEMBER: Good morning, Warren and Charlie. My name is Walter Chang and I’m from Houston, Texas.

Can you describe how you made your investment decision to invest in Anheuser-Busch and how you estimated its intrinsic value? How long did it take you to make this decision?

And is Budweiser inevitable, like Coca-Cola?

WARREN BUFFETT: I’m still drinking Coca-Cola.

The meeting might get a little exciting if I we were drinking Bud here. (Laughter)

We don’t get into much in the way of description of things we might be buying or selling, but the decision takes about two seconds.

But I bought 100 shares of Anheuser about — I haven’t looked it up — but I would say, maybe, 25 years ago when I bought 100 shares of a whole lot of other things .

And I do that so I can get the reports promptly and directly. You can get them to your brokerage firm, but I’ve found that it’s a little more reliable to put the stock in a direct name.

So I’ve been reading the reports for at least 25 years and I observe, just generally, consumer habits, and at a point — currently, the beer industry sales are very flat.

Wine and spirits have gained in that general category at the expense of beer. So if you look at the industry figures, they’re not going anywhere.

Miller’s has been rejuvenated to some degree. So Anheuser, which has had a string of earnings gains that have been quite substantial over the years and market share gains, is experiencing, as they’ve described — and they just had a conference call the other day — is experiencing very flat earnings, having to spend more money to maintain share, in some cases, having promotional pricing.

So they are going through a period that is certainly less fun for them than was the case a few years ago.

And it’s a fairly easy-to-understand product and consumer behavior is fairly easy to understand. It’s a very, very — exceptionally strong business.

In fact, what’s happened in the beer industry over the last 50 years has been fascinating to me and to Charlie because this is a brewing town that we grew up in, and Charlie knew the members of the Storz family, a number of them, well.

Storz had over 50 percent of the Omaha market in beer post-World War II and then basically disappeared as the national brands took over. So it’s an interesting phenomenon.

Beer business is not going to grow significantly in the U.S.

Worldwide, beer is popular in a great many places, and Anheuser will have a very strong position in it. But I would not expect the earnings to do much for some time, but that’s fine with us.

Charlie?

CHARLIE MUNGER: Yeah. At our scale of operation now, if we’re ever going to buy into a terribly well-regarded company, we almost need a little patch of unpleasantness. (Laughter)

WARREN BUFFETT: That’s been the best time to buy Berkshire, incidentally, too. I mean, we do —

What we’re looking for is businesses with a durable competitive advantage. I don’t think there’s any question that Anheuser has a very, very strong consumer position. Now, as I said, Miller has been rejuvenated to some degree.

But the other thing about it is, of course, in beer you do not see the prevalence of private labels or generic products that you see in a great many consumer products that are being — that had strong positions over the years, that are being attacked . That’s a small plus.

But beer consumption per capita is going no place. And there’s nothing that will change that.

Interestingly enough, the average person in this climate drinks about 64 ounces of liquid a year. And I think it’s roughly 27 percent of that will be carbonated soft drinks.

So almost — and, of course, of that Coca-Cola will be about — Coca-Cola products — will be 40-odd percent.

So, of the 64 ounces of liquid that Americans are drinking every day, you can figure something like 11 ounces of that, man, woman, and child, will be a Coca-Cola product.

Beer, as I remember — I could be wrong on this — but I think beer is about 10 percent of all liquids. So, one out of every 10 ounces that’s consumed by Americans of any kind of liquid is, I believe, is beer.

Coffee, incidentally, despite what you read about — you know, the popularity of Starbucks, which is very real, of course, — but coffee has just gone down and down and down over the last 30 or 40 years.

Charlie, you have any thoughts about your consumption habits? That you can talk about? (Laughter)

CHARLIE MUNGER: Well, there are people here that may remember Metz beer.

In this country, we had more breweries — there were hundreds — and small places would have two or three brands. And this trend toward concentration into a few giants is, I think, permanent.

WARREN BUFFETT: Yes. Schlitz was number one, as I remember, after World War II, for a while. I think Anheuser was number four at that time.

There’s an interesting book, if you’re a beer enthusiast, it came out a few years — a few months — ago, maybe a little longer than that, by a Wall Street Journal reporter that sort of toured the country sampling beers. I don’t know how it affected his writing. But it’s a pretty good book, if you like reading about the history of beer.