Photo: Matt Kopenhoffer, The Motley Fool

Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) investors are probably already familiar with the awesome financial results from See's Candies. See's, which Berkshire bought in 1972 for $25 million, has generated $1.7 billion in cumulative pre-tax earnings. Obviously, that investment was a financial windfall on its own, but Buffett compounded the benefit as those earnings funded many of Berkshire's other successful investments over the years.

That's the financial benefit, which is well known. But there was also a more subtle learning benefit. It helped Buffett come to appreciate the value of brands, ultimately leading to a large purchase of Coca-Cola (NYSE:KO) stock. Starting in 1988, Buffett started buying Coke stock, spending $1.3 billion to buy 400 million shares. Today, those shares are worth nearly $17 billion. And Buffett credits his decision to buy Coca-Cola to his experience owning See's Candies.  

Buffett explained all the benefits of the See's Candies acquisition in response to a shareholder question at the 2014 annual shareholder meeting in Omaha. Following are my notes on the shareholder's question, along with responses from Buffett and Charlie Munger.

Shareholder: See's is small in comparison to the rest of the subsidiaries, but is impressive, with profits growing from $5 million when you bought it to over $70 million when the last numbers were disclosed. Can you tell us what's happening in the market, and whether geographic expansion should be an opportunity?

Buffett: The boxed-chocolate business is not growing. Back 100 years, each city of any size had lots of candy shops. Chicago, New York were leaders. The predecessor to [PepsiCo (NASDAQ:PEP)] had the most candy shops in New York city. He acquired Pepsi for a few thousand bucks. So, loads of candy shops. Boxed chocolates have lost position, primarily to salted snacks of one sort or another. See's has done remarkably well, better than any other. Russell Stover had done very well with a different model until they ran into problems. We can't do much about expanding the market. We've tried expanding the geography multiple times, expanded out of California, and we didn't get very rich expanding. It doesn't travel very well.

Munger: Well, sometimes it does, and sometimes it doesn't. You figure out by trying it.

Buffett: We've tried it many times, but so far, it's interesting. People like milk chocolate two-thirds of the time, versus dark chocolate one-third of the time. But in the end there isn't much volume growth in boxed chocolates. See's has provided us with lots of cash for acquisitions and opened my eyes to the power of brands. We made a lot in Coca-Cola partly because of See's. There's something about owning [a brand] to educate yourself about things you might do in the future. I wouldn't be at all surprised that if we hadn't owned See's, we wouldn't have bought Coca-Cola.

Munger: There's no question about the fact that See's main contribution to Berkshire was ignorance removal. One of the benefits of removing our ignorance is that we grew into what we are today. At the beginning, we knew nothing. We were stupid. If there's any secret to Berkshire, it's that we're pretty good at ignorance removal.

Brendan Mathews owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and PepsiCo; owns shares of Berkshire Hathaway and PepsiCo; and has options on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.