Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.A) (BRK.B), has long been celebrated for his ability to distill complex business realities into simple, pointed observations. Among his many remarks is one that underscores the value of financial strength in maintaining a competitive edge, first captured in his 1989 letter to Berkshire Hathaway shareholders: “As businessmen, Charlie [Munger] and I relish having competitors who are unable to fund capital expenditures.”
This comment reflects a central tenet of Buffett’s philosophy — that access to capital and prudent financial management are often decisive factors in long-term success. In industries where reinvestment is essential, the inability of competitors to sustain or expand their operations creates opportunities for stronger players to capture market share, increase profitability, and solidify their positions. For Buffett and his longtime business partner, Charlie Munger, such situations were not only advantageous but also a natural reward for running businesses with financial discipline.
While the likes of Warren Buffett and the late Charlie Munger would never be interested in getting too involved with artificial intelligence (AI), the current tech landscape can help exemplify this ideology. Buffett has long held that he is happy to wait months, or even years, before metaphorically swinging at the right “fat pitch” thrown his way.
But his ability to capitalize on those pitches at a moment's notice is what makes Berkshire so special. If Meta (META), Google (GOOG) (GOOGL), Nvidia (NVDA), and other large players were forced to sit on their hands while others capitalized on the AI craze, the investing landscape would be a vastly different place. The fact that they have the money they do and the ability to capitalize on these trends is vital to their growth. Missing a great opportunity can be devastating to any business.
The context of this remark is rooted in Berkshire Hathaway’s strategy of acquiring and operating companies with durable competitive advantages and conservative balance sheets. Buffett has consistently avoided businesses that require excessive borrowing or constant infusions of capital just to remain viable. Instead, he has sought out firms capable of generating sufficient cash to fund their own growth. This approach reduces vulnerability during downturns, when weaker competitors may falter under the strain of inadequate financing or over-leverage.
History offers many examples of Buffett’s principle in action. During economic slowdowns, companies that lack the resources to maintain or upgrade facilities often lose ground to financially stronger rivals. In the retail and manufacturing sectors, for instance, businesses that fail to invest in technology, logistics, or product development quickly fall behind. Similarly, in capital-intensive industries such as energy or transportation, the inability to fund large projects can erode competitiveness over time.
Buffett’s words also resonate more broadly with investors. Capital expenditures, often referred to as “capex,” are a key indicator of a company’s ability to sustain growth and innovation. Firms that generate enough internal cash flow to cover these investments tend to be less dependent on volatile credit markets. This independence not only shields them during financial crises but also positions them to thrive when competitors struggle. By relishing such scenarios, Buffett reveals the pragmatic advantage of financial strength: it allows disciplined firms to expand while others retrench.
The authority of this statement comes not only from Buffett’s record but from the way Berkshire has weathered multiple market cycles. Through recessions, inflationary periods, and credit crises, the company has repeatedly demonstrated the benefits of conservative financing. This resilience has been mirrored in Berkshire’s subsidiaries, many of which operate in competitive industries where the ability to reinvest steadily is essential for survival.
In today’s markets, where rising interest rates and tighter credit conditions challenge highly leveraged companies, Buffett’s observation remains especially relevant. Businesses with strong balance sheets are positioned to withstand economic headwinds and even grow stronger, while weaker firms may face constraints on their ability to compete.
Ultimately, Buffett’s remark is less about relishing another’s weakness than about recognizing the enduring advantage of financial prudence. By prioritizing capital strength and self-sufficiency, Berkshire Hathaway has positioned itself to benefit from one of the most fundamental truths of business: in times of constraint, the strongest balance sheets often dictate the winners.
