I Read Every Berkshire Letter Since 1965. Here's What Nobody Talks About.
The hidden insights from 60 years of Buffett's wisdom that could change how you think about investing forever
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I spent the last three months doing something most investors claim they'll do but never actually follow through on:
I read every single Berkshire Hathaway annual letter from 1965 to 2024.
All 60 years. Every word. Every footnote.
What I discovered wasn't just investment advice.
It was a real-time documentary of how the greatest investor of all time actually thinks.
And there are insights buried in these letters that somehow never make it into the highlight reels or quote compilations.
Today, I'm sharing three overlooked gems that could fundamentally change how you think about capital allocation and risk management.
The Float Formula That Created a Fortune
Everyone knows Berkshire owns insurance companies.
What they miss is that insurance float was Buffett's rocket fuel for 60 years.
Think about the math for a second.
Berkshire has roughly $165 billion in float today. That's $165 billion of other people's money that Buffett gets to invest.
Even better?
Much of this float has been cost-free or even profitable. Meaning Buffett got paid to borrow money, then invested it in Coca-Cola, Apple, and American Express.
As Buffett explained in his 2002 letter:
"To begin with, the float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money."
Read that again.
He gets paid to hold other people's money.
Then he invests that money in compounding machines.
That's financial alchemy.
Buffett described it perfectly in his 1997 letter:
"An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds."
Translation: If you can borrow money for free (or better), then invest it at 15% annual returns for decades, you've essentially discovered the investment equivalent of perpetual motion.
Why This Matters for Regular Investors
Most investors focus on Buffett's stock picks.
They're missing the structural advantage that made those picks possible.
Without float, Buffett would have been just another smart investor with limited capital.
With float, he became the greatest capital allocator in history.
The lesson? Structure matters more than strategy.
Finding ways to deploy patient, low-cost capital is often more valuable than finding the perfect stock.
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Derivatives: The "Weapons of Mass Destruction" Warning Nobody Heeded
2002 letter - six years before the financial crisis:
"In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
Six years early.
While Wall Street was printing money with complex derivatives, Buffett was warning about systemic risk.
But here's what's fascinating: Buffett wasn't just worried about derivatives themselves - he was terrified of the interconnectedness they created.
The 2008 crisis played out exactly as he predicted - not just that derivatives were dangerous, but how they would bring down the system through counterparty risk and contagion.
The Uncomfortable Truth About Complexity
What Buffett really understood: complexity is the enemy of understanding, and derivatives make everything incomprehensibly complex.
Translation?
When you can't understand the risks, you can't price them properly.
And when you can't price risk, you're gambling, not investing.
Modern takeaway: If the smartest investor alive avoids an entire asset class because it's too complex, maybe the rest of us should pay attention.
His Evolving Views on Diversification: From Arrogance to Wisdom
Early Buffett was almost arrogant about concentration.
Later Buffett developed genuine humility about what most investors should do.
Here's the evolution in real-time:
1996 Berkshire meeting:
"We think diversification is - as practiced generally - makes very little sense for anyone that knows what they're doing. Diversification is a protection against ignorance."
But then something interesting happened.
Mature Buffett started recommending index funds for most investors.
Notice the crucial shift?
Early Buffett assumed everyone could achieve his level of business analysis.
Mature Buffett recognized that most people can't - and shouldn't try.
The Wisdom Hidden in the Evolution
This isn't just about diversification
It's about intellectual honesty and self-awareness.
Most investment gurus double down on their original positions forever.
Buffett publicly evolved his thinking based on five decades of evidence.
The real lesson?
Great investors aren't those who are always right. They're those who update their beliefs when presented with new information.
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The Meta-Lesson That Changes Everything
After reading 60 years of letters, here's what really stands out:
Buffett's greatest advantage wasn't intelligence.
It was structure.
The insurance float gave him permanent capital. The public company structure gave him patient shareholders. The annual letters gave him a direct line to communicate with those shareholders.
That combination created the perfect environment for long-term wealth creation.
Most investors are playing a completely different game.
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Until next week,
Dom
Schwar Capital
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Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.
Great insights! His purchase of National Indemnity started the rocket ship.
I like this article a lot! Am glad you read these, even more glad that you reflected on them and shared your conclusions.
Fwiw, I’m one of those who read his letters occasionally. I remember reading the part about the float - that was revelatory at the time. I didn’t grasp the derivatives part as fully and had forgotten about it; thanks for bringing that one back to light.