The ideal business is one that earns very high returns on…
““The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine,” Buffett said. “So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital—twenty million—ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that...we can move that money around from those businesses to buy more businesses.””
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
Businesses that repeatedly earn high returns on reinvested capital compound wealth over time, creating powerful growth engines.
In simple terms: High‑return businesses compound wealth when profits are reinvested.
Key Takeaway
Seek businesses with sustainable high returns.
Themes
investment
compounding
business strategy
Mood
optimistic
analytical
Type
financial
strategic
When to use this quote
- private equity
- venture capital
- corporate finance
- growth investing
Key Concepts
Economic theory
capital efficiency
Questions to Reflect On
- How can you identify durable high‑return businesses?
- What risks arise from over‑reliance on compounding?
A Different Perspective
Few companies can sustain very high returns long term.