> But all these encomia remind me of that great quote in Barbarians at
> the Gate on why he loves tobacco as an investment: the product costs a
> penny to make, it sells for a dollar, there's great brand loyalty, and
> it's addictive. I haven't seen that quoted anywhere lately.
The full quote, on page 218 of my edition, goes like this:
When Buffett (a director at Salomon Brothers) came on the line, Gutfreund put him on a speaker phone and laid out the situation in detail. What should they do?
Go for it, Buffett advised. Once one of RJR's largest shareholders, he knew tobacco and liked it. "I'll tell you why I like the cigarette business," he said. "It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty."
Would Buffett himself like to join forces with Salomon? No, the investor said, not at this time. Cigarettes were a fine investment, but owning a tobacco company, with its social baggage and all that Death Merchant business, wasn't a burden Buffett felt he was ready to bear. "I'm wealthy enough where I don;t need to own a tobacco company and deal with the consequences of public ownership," he said.
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A cursory look at BRK's last 11 annual reports showed no tobacco investments that rose to the level of disclosure there. (Other sites have noted that BRK probably has invested in UST, formerly U.S. Tobacco, at some point.) And at least at the 1994 annual meeting, he indicated that he was not going to invest much of the company's cash in tobacco (http://www.burgundy-asset.com/may-94.asp). Buffett has seemed to be remarkably averse to negative publicity--BRK stopped all its corporate giving when a right-wing group objected to donations that a subsidiary was making to Planned Parenthood--so the aversion to tobacco investing is probably two-pronged.
--tim francis-wright