Question: What types of businesses have the highest ROIC?
Buffett: 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. Subscriptions are paid upfront, they have limited fixed investments. There are certain businesses like this. Blue Chip Stamps – it got float ahead of time.
There are a lot of great businesses. 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.
Munger: Nothing to add, the formula never changes.
If you could own one business in the world, what would it be?
Munger: You and I got in trouble many decades ago for this, naming the most fabulous business. High pricing power, a monopoly – we don’t want to name it publicly!
Source: BRK Annual Meeting 2010 Boodell Notes