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It is important to clearly distinguish between rates of return on capital employed by operating businesses and potential rates of return available to those buying shares at various prices. It’s perfectly possible for a very high return on capital company (small amounts of money used internally relative to profits) to have shares so expensively priced that they offer any new shareholders poor rates of return on their money. This phenomena makes most high rates of return on operating unit companies impossible for value investors to buy.
BUFFETT speaking at Berkshire’s AGM 1st May 2021:
“We’ve always known that the great business is one that takes very little capital and grows a lot. Apple and Google and Microsoft and Facebook are terrific examples of that. Apple has $37bn in property, plant and equipment, Berkshire has $170bn or something like that.
“They’re going to make a lot more money that we do…it’s a much better business than we have. And Microsoft’s and Google’s business are way better businesses than we have.
“We’ve known that a long time; we found that out with See’s Candy in 1972. It just doesn’t require that much capital – it has a couple of manufacturing plants – but it doesn’t have big inventories, it doesn’t have a lot of receivables.
“You know, those are the kind of businesses, they’re the best businesses but they command the best prices too.
“We’re looking for them all the time. And we’ve got a few that are pretty darn good, but we don’t have anything as big as the big guys.
“But that is what everybody is looking for, that’s capitalism. It’s about people getting a return on capital and the way you get it having something that doesn’t take too much capital. I mean if you really have to put out tons and tons of capital…
“Take the utility business. It’s not a super-high
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