Issue #5 — The Business That Tripled Without Growing

AI’s growth story is much bigger than chatbots.

The market was already valued at an estimated $800 billion by late 2025, and continued adoption could push it beyond $1 trillion in the years ahead. That growth will require more data centers, computing power, software, networking and intelligent devices.

But the most obvious AI names may not be the only companies positioned to benefit.

MarketBeat’s free 10 Best AI Stocks to Own in 2026 report identifies ten publicly traded companies helping power the next phase of the AI buildout. Some are established leaders. Others occupy less obvious corners of the expanding AI ecosystem.

This free report names 10 stocks positioned to ride that wave before the rest of the market catches on.

Key Takeaways

In the 1977 letter, buried inside the Blue Chip Stamps section, Buffett drops a set of numbers that should make you stop and reread the page.

Berkshire (via Blue Chip) had bought See's Candies in 1972. In 1972, See's produced $4.2 million in pre-tax earnings. Five years later, that number was $12.6 million.

Now here's what makes it strange:

So how did earnings triple?

There's only one answer. See's was selling roughly the same number of boxes at meaningfully higher prices — and customers were paying without complaint.

That's called pricing power. And Buffett had just learned, in real time, what it was worth.

Boxed chocolates should be a commodity. Sugar, cocoa, milk, packaging — nothing exclusive about the ingredients. Anyone can open a chocolate shop. Yet Buffett had bought a business where he could raise prices every single year and lose almost no customers.

The reason came down to what the product was actually for.

Nobody buys See's chocolates because they're hungry. They buy them as a gift — for Valentine's Day, Mother's Day, a hostess, a thank-you. And when you're giving chocolates as a gift, the last thing you want to look is cheap. If See's costs a dollar more than the drugstore brand, that's actually a feature. It signals that you cared enough to buy the good one.

The product had an emotional job to do — and price wasn't the point. Customers would sooner pay 20% more than switch to a generic. That's pricing power in its purest form.

Here's why this one idea matters more than almost any other in investing.

Inflation. When costs rise, businesses without pricing power watch their margins get squeezed. Businesses with pricing power just raise prices and preserve their margins. Over a decade of 3% inflation, that difference compounds into roughly a third of real earnings — kept versus lost.

Reinvestment economics. See's tripled earnings with "little additional capital investment." That means almost every new dollar of profit was pure surplus — cash that could be sent back to Berkshire and redeployed into other businesses. Compare that to a capital-intensive commodity business like textiles, where every dollar of profit gets plowed back in just to keep the machines competitive. One model funds the empire. The other consumes itself.

Durability. Pricing power tends to stick. Brand trust, habit, emotional attachment — these things don't disappear overnight. Businesses with pricing power keep it for decades, if management doesn't do something reckless.

Put those three together and you see why Buffett spent the next 50 years hunting for exactly this trait. Coca-Cola. American Express. Moody's. Apple. Every one of them can raise prices without losing customers. Every one throws off cash rather than consuming it.

Buffett doesn't list them explicitly in 1977, but any business with real pricing power has at least one of these:

When you're evaluating any business, ask one question: if this company raised prices by 10% next year, what would happen to unit volume? If the honest answer is "nothing much," you've found pricing power. If the honest answer is "customers would walk immediately," you haven't.

It took Buffett another 15 years to fully articulate what he'd seen at See's. By 1991 he had a word for it: a franchise. A business whose product, in his definition, "is needed or desired, is thought by its customers to have no close substitute, and is not subject to price regulation."

A franchise, he wrote, "can tolerate mismanagement and still survive." A commodity business "requires unusual managerial competence just to earn adequate returns."

See's was the first true franchise Berkshire ever bought. Buffett has admitted, more than once, that owning it changed how he thought about business quality forever after. Before See's, he was a Ben Graham-style bargain hunter looking for cheap statistical value. After See's, he was hunting for durable pricing power at any reasonable price.

That shift is arguably the single most important evolution in Buffett's career. And it started with a 1972 candy-store purchase that made three times more money in five years without growing.

Almost every truly great long-term investment shares this one trait. Not high growth. Not a great story. Not popularity. Just the quiet ability to raise prices without losing customers.

Next time you're looking at a stock, spend more time on this question than on any earnings forecast. Growth stories come and go. Pricing power compounds.

Issue #6 — Thinking Like an Owner: The Six Rules from 1977–1980
The finale of Season 1. We pull together everything from the first four Buffett letters — ROE, tailwinds, the four criteria, look-through earnings, and pricing power — into a single mental framework you can apply to any business you'll ever evaluate. Then we open Season 2 with 1981.

Markets move. Headlines catastrophise. But somewhere inside the noise is the story that matters — the opportunity, not the fear. 

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