Found this through Fat Pitch Financials

In the margins of a letter to a 20-something year old money manager, Warren Buffett succinctly answers a deep philosophical question of value investing. If you had an optimum capital base, which investing style is better, cheap and narrow-moat companies or pricey and wide-moat companies?

Alas, Buffett’s response was not as definitive as one would hope. He said, “Either is fine. [Cheap and Narrow] is better for small sums. [Expensive and Wide] is better for large sums.”

Here is my interpretation. Buffett is referring to relative allocation within a portfolio, rather the total size of the portfolio. If you decide to invest in the cheap category, you need greater diversity to protect against a higher failure rate. Therefore the sums invested in each company should be small in comparison to the total portfolio. On the other hand, a portfolio focused on blue chips should be concentrated because failure is less likely in that group.

It is true that a large capital base cannot find enough small investments to justify the time invested. However the context of Shai’s question clarifies that the portfolio is small enough so that diminishing returns are not a consideration. So, the point of Buffett’s response is not that small investors should be only looking at small caps. Either small or large caps are fine, but the strategy must be appropriate to their size. Don’t concentrate in a few small caps, and don’t buy every blue chip.