Warren Buffett Explains Why He Sold McDonald's

Finance-focused summary (Buffett on holding vs. selling & McDonald’s/Dairy Queen economics)

Hold vs. sell framework (Buffett)

• No natural inclination to sell: Buffett says they don’t want to sell unless they need cash.
• Typical long-term approach: Buffett describes “forever” holdings, including:
  • The Washington Post (held since 1973)
  • Berkshire Hathaway shares (first bought 1962; described as never sold)
  • Coca-Cola (Coke) (held since 1988)
  • Gillette (held since 1989)
  • American Express (AmEx) (held since 1991; also referenced as owned in the 1960s; Disney is also mentioned as referenced in the 60s)

When they do sell (the stated reason)

Buffett says they sell when they believe they have overestimated the business’s long-term competitive advantage—or when the company’s “economic performance” thesis has weakened over time.

• The company may still have a “great future,” but:
  • the forces supporting the original thesis appear to have eroded or been exhausted.

Examples cited in this context include:

• McDonald’s
• Disney

Buffett clarifies the rationale for selling these names as thesis-change, not as a claim that the businesses will fail.

Context / opportunity set

• Historically (~40 years ago): Buffett sold everything to buy something “better” and says he didn’t want to borrow money—he had more ideas than money.
• Now: He says he has more money than ideas, so selling is less about rotating into “cheaper” opportunities and more about assessing thesis durability.

“Forever” vs. thesis change: Buffett’s analogy

• Newspaper example:
  • If they’d looked in 1970, newspapers might have seemed extremely “unshakable.”
  • By 2002, Buffett argues the franchise/network dynamics changed (e.g., “network television franchise” would not be the same in 2002 vs 1965).
• Takeaway: even strong businesses can evolve in ways that cause the original moat assumptions to erode.

Specific note on a notable sale decision

• Buffett/Charlie discussion implies the decision to sell—notably McDonald’s—was a mistake “for frankness.”
• Buffett states it “cost you… over a billion dollars.” (Exact dollar figure not specified.)
• The point is tied to Berkshire’s culture: they “poke our noses into our own mistakes.”

Business model comparison: McDonald’s vs. Dairy Queen (franchising economics)

McDonald’s (Buffett)

• Scale and ownership mix:
  • McDonald’s is described as owning/operating about a third of restaurants worldwide (Buffett can’t give an exact percentage).
  • With ~23,000 locations, Buffett suggests they own/operate many thousands.
• Operating economics:
  • Buffett contrasts larger physical capital exposure (from company-owned locations) with the returns produced by owning the locations.

Dairy Queen (Buffett)

• Location footprint and structure:
  • More than 6,000 Orange Julius locations.
  • About ~30 are operated by the company itself.
  • Many others are structured as franchise/joint venture arrangements.
• Revenue/royalties:
  • The parent earns about ~4% of franchisee sales as royalties (Buffett says this is “lower end of the range” across the industry).
  • Buffett emphasizes the franchisor’s capital involved is relatively small compared with McDonald’s company-owned asset model.
• Additional payoff alignment:
  • Buffett/Charlie stress that franchisees must succeed so the parent benefits over time.

Explicit investment takeaway from the franchise model

• Focus on operator economics:
  • Franchise fee/royalty level matters—Buffett indicates they like low franchise fees (Dairy Queen is cited).
• The goal: a successful franchisee can sell the business for more than the tangible assets invested, meaning franchisees build valuable capital that also benefits the franchisor.

Key numbers mentioned

• Holding years (examples):
  • 1960s (AmEx/Disney referenced)
  • 1973 (Washington Post)
  • 1988 (Coca-Cola)
  • 1989 (Gillette)
  • 1991 (AmEx)
• Thesis-change windows:
  • 1970 vs 2002
  • 1965 vs 2002
• McDonald’s ownership:
  • “about a third” of restaurants
  • ~23,000 locations (context indicates locations)
• Dairy Queen / Orange Julius:
  • >6,000 Orange Julius locations
  • ~30 company-operated Orange Julius locations
  • ~4% of franchisee sales as royalties
• Mistake impact:
  • over $1 billion (cost from the sale decision)

Disclosures / disclaimers

• No explicit “not financial advice” disclaimer appears in the provided subtitles.
• The discussion does include a frank admission that a sale decision was a mistake and names its approximate cost.

Mentioned presenters / sources

• Warren Buffett
• Charlie Munger