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Good morning. Uh, Angie Jansen of Cambridge, Massachusetts. Uh, my question is, aside from the need to put huge amounts of capital to work, do you still believe that a high return on tangible capital business like C's or Coke is the best asset to hold to hold in an inflationary environment? Or do you now think an irreplaceable hard asset with pricing power like a railroad or a hydroelectric dam is superior?
Yeah, the first group is superior just as as I mean if you can have a wonderful consumer product uh it doesn't have to be a consumer product a product that requires very little capital to grow and do more dollar volume uh as will happen with inflation even if you don't have unit growth uh and it doesn't take much capital uh to support that growth that is a wonderful asset to have in inflation I mean the ultimate test of that is your own earning ability.
I mean, if if if you're an outstanding doctor, lawyer, whatever it may be, teacher, the you as inflation goes along, your services will command more and more in in dollar terms and you don't have to make any additional investment in yourself. uh people think of that you know with a uh a very long live real estate asset or something of the sort or a farm or anything where additional capital is not required to finance inflationary growth.
The worst kind of businesses are the businesses with tons of receivables and inventories and all of that. And in dollar terms, if their if their volume stays flat, but the price level doubles and they need to come up with double the amount of money uh uh to do that same volume of business, that can be a very bad asset.
Now normally we are not enthused about businesses that require heavy capital investment just like utilities and the railroad. We think that uh on the other hand that particularly with the railroad that uh where you do not have any guaranteed lower rate of return that you should be entitled to earn returns on assets that are becoming more and more valuable to the to the economy as uh whether it's in because of inflationary factors or or because of just natural growth factors or in the case of the United States I think it'll be both.
Uh but the ideal business seas candy is doing uh it was doing 25 million of volume when we bought it and it sold 16 million pounds of candy at a little more than a well it retails a $1.90 and we had some quantity discount. So we were doing close to $30 million worth of business. Now we're doing well over $300 million worth of business.
It took $9 million of tangible assets to run it when it was doing uh 30 and it takes about 40 million of tangible assets to at 300 and something. So we've only had to plow back $30 million into a business which will make us well it's made us probably a billion and a half pre-tax during that period. And if the price of candy doubles, we don't have any receivables to speak of.
Our inventory turns fast. We don't store it or anything like that. We gear up seasonally. And the fixed assets aren't big. So that that is a much better business to own than a utility business if you're going to have a lot of inflation. Charlie. Yeah. And what's interesting about it is that we didn't always know this and and so
and sometimes we forget it. That's true too. But it shows how continuous learning is absolutely required to have any significant achievement at all in the world. Yeah. And it it does show you know I've said in the past that I'm a better businessman because I'm an investor and I'm a better investor because I'm a businessman.
There's nothing like actually experiencing the necessity particularly in the 1970s when inflation was gathering strength in early 80s. You would see this absolutely required capital investment on a very big scale that really wasn't producing anything uh commensurate in the way of of earnings. I wrote an article for Fortune called how inflation swindles the equity investor back in 1977.
You really want the ideal asset, you know, is a royalty on somebody else's sales during inflation where all you do is get a royalty check every month and it's based on their sales volume and you made some you came up with some product originally, licensed it to them and you never have another bit of capital investment.
You have no receivables, you have no inventory, you have no fixed assets. That kind of a business is real inflation protection assuming the product maintains its viability. Uh uh so even though we are going into some very capital intensive businesses, part of that reflects the fact we can't deploy the amount of capital we have uh in a whole bunch of seized candies.
We just can't we can't find them. We'd love to find them, but we can't find them in the quantity. So we are not doing as well with capital when we're have to invest many billions a year as we would if we were investing a few millions a year. There's no question that's true in investments. It's true in operating businesses.
There is a real disadvantage uh to size and uh we just hope that problem grows. Now you're talking
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