A Reese’s Commercial….and an Investment Lesson

It has been a while.  Being away is good.  The daily chatter of the news-cycle is difficult to avoid.  I spent some time with family at a cabin without any cell reception.  It was great.  Luckily, through some technological miracle I have yet to understand, my phone wouldn’t work, but the cabin was able to receive HD reception of football games.

Many investment lessons are much like life’s lessons–the same lesson taught over and over in a different way, through a different story, different life experience that reminds, in a new way, something you already knew.

In between the breaks of the football games on New Year’s Day, a Reese’s commercial came on.  I am of the cord-cutting generation, so I don’t think I have seen a television commercial in years.  But this one was great.  You can see the commercial here….

[The ad mocks car commercials by introducing the All Not New Reese’s Peanut Butter Cup 2015 Model].

If you are an advertising executive, you might shrug your shoulders at this ad.  If you are an investor, your eyes light up.  Reese’s was created in 1928, and change isn’t the first word that comes to mind with this product.  I went back and looked at commercials from the 1980s and they looked exactly the same.

I have been reading a few books about the auto industry recently.  It is amazing the amount of money that is sunk into products that either don’t work, or only work for a few years and then are constantly changing.  Even the Mustang has evolved significantly over the years.  The amount of capital expenditure that goes into updating these products is underestimated by investors.  Right on cue, a few days ago GM announced it was planning to spend $9B on capex in 2015.  That’s 75% of its operating cash flow from 2013.

The great part about this lesson is it isn’t one that needs to be conjured up through some esoteric study of financial statement ratios.  Just step back and think.  What products in the 1980s look almost exactly the same as they do today?

You can go down the rabbit hole of Youtube video commercials from the 1980s starting here.

If you want to understand why value investors don’t love technology, check out these cutting edge technologies from the 1980s: here.

Also, over the holidays, some of you may have watched It’s a Wonderful Life.  Think about George Bailey.  If he walked into a branch at Wells Fargo today, would it be much different than it was in 1946?  Sure, they would use computers to keep track of the money, but taking in deposits and making loans to buy homes, start businesses, just isn’t that different than banking as depicted in the movie from the 1940s.

Two simple ideas, somewhat related.  Businesses that don’t change much and don’t require large ongoing capital expenditures are better investment prospects than any other kind.  And one other–always make sure you have milk when eating a Reese’s….

“Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago… a business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.”  

Warren Buffett, 1987 Shareholder Letter  

More to Explore

Returns for Great vs. Bad Businesses

Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.

This Post Has 2 Comments

  1. To me, the banking industry has been constantly changing due to regulations. At one point, things got so bad that Wesco decided to sell their savings & loan.

    1. Glenn, I think there are certainly changes in every industry. I think we the changes are regulatory-related, it provides an even playing field for all players and the changes are typically fairly slow.

Leave a Reply


Close Menu