Warren Buffett: The Investing World Really Has Changed: More Than People Appreciate

During the 2017 Berkshire Hathaway Annual Meeting, Warren Buffett discussed how the investing world has changed from the days of Rockefeller and Carnegie. Here’s an excerpt from the meeting

WARREN BUFFETT: Well, we’d love to find them. I mean, there’s no question that buying a high-return-on-assets, very light-capital-intensive business that’s going to grow beats the hell out of buying something that requires a lot of capital to grow.

And this varies from day to day, but I believe — and I don’t think it’s sufficiently appreciated. I believe that probably the five largest American companies by market cap — and some days we’re in that group and some days we aren’t — let’s assume we’re not in that group on a given day — they have a market value of over $2 1/2 trillion, and that 2 1/2 trillion is a big number.

I don’t know whether the aggregate market cap of the U.S. market is, but that’s probably getting up close to 10 percent of the whole market cap of the United States. And if you take those five companies, essentially, you could run them with no equity capital at all. None.

That is a very different world than when Andrew Carnegie was building a steel mill and then using the earnings to build another steel mill and getting very rich in the process, or Rockefeller was building refineries and buying tank cars and everything.

Generally speaking, over — for a very long time in our capitalism, growing and earning large amounts of money required considerable reinvestment of capital and large amounts of equity capital, the railroads being a good example.

That world has really changed, and I don’t think people quite appreciate the difference.

You literally don’t need any money to run the five companies that are worth collectively more than $2 1/2 trillion, and who have outpaced any number of those names that were familiar, if you looked at the Fortune 500 list 30 or 40 years ago, you know, whether it was Exxon or General Motors or you name it.

So we would love — I mean, there’s no question that a business that doesn’t take any capital and grows and has, you know, almost infinite returns on required equity capital, is the ideal business.

You can watch the entire discussion here: