Can Warren Buffett take on a smart question from an 8-year old? In this case, that 8-year old is named Daphne and from New York.
Daphne first notes that Berkshire’s best investments historically have been in very capital efficient business like Coke, See’s Candies and Geico. But recently, the firm has invested in companies with huge capital needs and low rates of return, such as Burlington Northern.
She asks: Could you please explain why Berkshire’s largest recent investments have departed from that old capital efficient philosophy?
Mr. Buffett’s response: "You’re killing me Daphne."
He adds: "Im glad she’s not 9." And the crowd gives both a loud round of applause.
There simply isn’t a scenario on Earth that will get a bigger applause at Woodstock for Capitalists than an eight-year old asking a capital efficiency question.
Mr. Buffett elaborates to note that Berkshire always prefers the businesses that earn terrific returns on capital, like See’s but that the purchase of Burlington means that Berkshire can’t currently deploy money into capital-light businesses at a price that make sense to the firm.