1. What types of businesses have the highest ROIC? Source: BRK Annual Meeting 2010
WB: You could run Coca Cola with no capital. There are a number of businesses that operate on negative capital. Great magazines operate with negative capital.
Apple doesn’t need very much capital. See’s needs little capital but it can’t get that large we can’t get people eating 10 lbs of boxed chocolate every day. Great consumer businesses need relatively little capital. Where people pay you in advance (magazines, insurance), you are using your customers’ capital.
But the rest of the world knows this and they get expensive. It can be competitive to buy them. Business Wire – it doesn’t require capital. Many service businesses require little capital. When successful, they can be something.
2. Would you comment on the quality of earnings in capital intensive businesses, like utilities? Source: BRK Annual Meeting 2009
Buffett: Capital intensive industries outside the utility sector scare me more. We get decent returns on equity. You won’t get rich, but you won’t go broke either. You are better off in businesses that are not capital intensive. Munger: A lot of moats have been filling up with sand lately.
3. How do you grow a small business into a big business? Source: BRK Annual Meeting 2008
CM: It’s the nature of things that most small businesses will never be big businesses. It is the nature of things that most big businesses fall into mediocrity or worse. Most players have to die. We have only made one new business, and that is the reinsurance business run by Ajit. We only created from scratch one small business into a big one. We’ve only done it once.