We don’t care if a company is large cap, small cap, middle cap, micro cap. It doesn’t make any difference.
The only questions that matter to us:
Do we understand the business?
Do we like the people running it?
And does it sell for a price that is attractive?
From my personal standpoint running Berkshire now because we got, pro forma for Gen. Re, $75 to $80 billion to invest in and I only want to invest in five things, so I am really limited to very big companies. But if I were investing $100,000, I wouldn’t care whether something was large cap or small cap or anything. I would just look for businesses I understood.
Now, I think, on balance, large cap companies as businesses have done extraordinarily well the last ten years–way better than people anticipated they would do. You really have American businesses earning close to something 20% on equity. And that is something nobody dreamed of and that is being produced by very large companies in aggregate. So you have had this huge revaluation upwards because of lower interest rates and much higher returns on capital.
If America business is really a disguised bond that earns 20%, a 20% coupon it is much better than a bond with a 13% coupon. And that has happened with big companies in recent years, whether it is permanent or not is another question. I am skeptical of that. I wouldn’t even think about it–except for questions of how much money we run–I wouldn’t even think about the size of the business. See’s Candy was a $25 million business when we bought it. If I can find one now, as big as we are, I would love to buy it. It is the certainty of it that counts.
Source: Lecture at the University of Florida Business School
Time: October 15th 1998