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.
The low hanging fruit of “float” for those that withdraw from a 401k in retirement is taxes. It is set up to pay taxes with every withdrawal. Only pay taxes when they are due, not ahead of time with each withdrawal.
One could take a more cynical view of the insurance industry: That the much-praised "float" is, in practice, a euphemism for overcharging and underpaying. While insurers are supposed to balance premiums and payouts through sound risk assessment, with a reasonable profit margin attached, the reality often skews toward maximizing retained capital. This "float" becomes a massive, low-cost pool of capital that can be invested or leveraged, effectively turning an actuarial service into a cash-generating machine. Moreover, the industry benefits from an implicit government backstop in the event of truly catastrophic losses, essentially a taxpayer-funded call option that even reinsurers can't fully price in. In this light, the insurance business looks less like a noble steward of shared risk and more like a highly sophisticated toll booth on human misfortune.
That all said, he was certainly correct about derivatives!
if you assume insurance companies are for profit, then even if they are completely fair and pay on time the full amount you were insured, they must charge you more than that expected cost + overhead. if they don't they are cheating their stock-holders.
no cynicism - just pure arithmetic.
i think what's special about Berkshire Hathaway - is that it never felt compelled to distribute dividends. This is why other insurance companies (that in theory enjoys the same "float for free" advantage) are big but not as big. if any other company would try to hold 350B in cash, investors would chase the board members till the end of the world to get them to distribute dividends.
This is exceptional work, Dom. You didn’t just read the letters, you listened to them. The distinction you draw between intelligence and structure is especially sharp. Most investors worship Buffett’s outcomes without examining the vessel that made those outcomes possible.
The float is his Philosopher’s Stone. Not because it’s magical, but because it transmutes time, risk, and capital into compounding power. The Magus card in Tarot carries this exact symbolism. Tools are laid on the table, but mastery lies in how they’re used.
Thank you for distilling 60 years of thought into something both rigorous and resonant. This belongs in every investor’s toolkit.
BRK has been setting record highs for the last 2 years. WB has been hoarding cash for the last 2 years. Moral: You will make money following the BRK stock than WB himself.
Great insights! His purchase of National Indemnity started the rocket ship.
Thanks for the support!
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.
Thanks for your message Barrett.
This was really awesome. Great piece!
🙏
Thanks for writing, this is great!
Cheers! You're welcome!
The low hanging fruit of “float” for those that withdraw from a 401k in retirement is taxes. It is set up to pay taxes with every withdrawal. Only pay taxes when they are due, not ahead of time with each withdrawal.
One could take a more cynical view of the insurance industry: That the much-praised "float" is, in practice, a euphemism for overcharging and underpaying. While insurers are supposed to balance premiums and payouts through sound risk assessment, with a reasonable profit margin attached, the reality often skews toward maximizing retained capital. This "float" becomes a massive, low-cost pool of capital that can be invested or leveraged, effectively turning an actuarial service into a cash-generating machine. Moreover, the industry benefits from an implicit government backstop in the event of truly catastrophic losses, essentially a taxpayer-funded call option that even reinsurers can't fully price in. In this light, the insurance business looks less like a noble steward of shared risk and more like a highly sophisticated toll booth on human misfortune.
That all said, he was certainly correct about derivatives!
if you assume insurance companies are for profit, then even if they are completely fair and pay on time the full amount you were insured, they must charge you more than that expected cost + overhead. if they don't they are cheating their stock-holders.
no cynicism - just pure arithmetic.
i think what's special about Berkshire Hathaway - is that it never felt compelled to distribute dividends. This is why other insurance companies (that in theory enjoys the same "float for free" advantage) are big but not as big. if any other company would try to hold 350B in cash, investors would chase the board members till the end of the world to get them to distribute dividends.
This is exceptional work, Dom. You didn’t just read the letters, you listened to them. The distinction you draw between intelligence and structure is especially sharp. Most investors worship Buffett’s outcomes without examining the vessel that made those outcomes possible.
The float is his Philosopher’s Stone. Not because it’s magical, but because it transmutes time, risk, and capital into compounding power. The Magus card in Tarot carries this exact symbolism. Tools are laid on the table, but mastery lies in how they’re used.
Thank you for distilling 60 years of thought into something both rigorous and resonant. This belongs in every investor’s toolkit.
BRK has been setting record highs for the last 2 years. WB has been hoarding cash for the last 2 years. Moral: You will make money following the BRK stock than WB himself.
The float system and proper use of structure is the way my system works. It grows unbelievably fast.