QuestionerIn your reports and other writings, Mr. Buffett, you state that you like to acquire businesses that can employ a large amount of capital to high returns. And in reading the writings and speeches of yourself, Mr. Munger, I've seen you say that you enjoy investing in companies that require very little capital. And I was wondering if these statements are at odds or if they are two sides of the same coin.
WarrenThe ideal business is one that earns very high returns on capital and could keep using lots of capital at those high returns. I mean, that becomes a compounding machine. So if you have your choice, if you could put $100 million into a business that earns 20% on that capital, say 20 million, Ideally, it would be able to earn 20% on 120 million the following year, and 144 million the following year, and so on. That you could keep redeploying capital at these same returns over time. But there are very, very, very few businesses like that. The really, unfortunately, the good businesses, you know, take a Coca-Cola or seize candy, they don't require much capital. And incremental capital doesn't produce anything like the returns that this fundamental returns return that's produced by some great intangible. Most of the great businesses generate lots of money. They do not generate lots of opportunities to earn high returns on incremental capital. You know, we can deploy X at C's and earn a lot of money, but if we put 5x in, we don't earn any more money to speak of. We can earn high returns on X at the Buffalo News, but if we try to make it 5x, we don't earn any more money. They just don't have the opportunities to use income. incremental capital. We look for them, but they don't. Now, the one good thing about our structure at Berkshire is that we can take those businesses that earn good returns in their business but don't have the opportunity for returns of a similar magnitude on incremental money, and we can move that money around to buy more businesses.