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Brooklyn Investor post on Buffett/Berkshire


Liberty

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always exceptional posts...brooklyn always has a new way of thinking of something or a different perspective.

 

Yeah, I like his conversational/stream-of-consciousness style combined with his "let's reason about this from first principles" approach. One of my fave financial bloggers.

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  • 11 months later...

Float can be viewed many different ways.  1 way to think of float is in 2 equal functions.  #1 - Dollars deposited in the form of Premiums arriving for new/renewal policies being written & #2 - Dollars leaving in the form of claims being paid.  For example, claim settled today could be paid with premium collect today.  Yes, a liability comes with premium collected today but claiming on that collected dollar could take years to pay out - or may never be paid out at all.  With actuary models where they are now (be fearful of computers modeling risk/underwriting), and the conservative actuarial nature of BH Insurance as a whole, the individual carriers like NICO, Berk RE, GenRE, Berk Specialty and Berk Prim have as close "to the penny" understanding, leads the industry, of what the cash needs could be for the foreseeable future - 120 days minimum - probably longer.  GIECO only comes into play on CAT/SUPER CAT due to the Comprehensive Coverage exposure (cars/trucks damaged due to wind/hail/quake).  Pretty sure Ajit & Warren are keenly aware of the large renewals and large claims under negotiation that could adversely affect cash on hand - doubt it is ever an issue.  I'm not concerned about Float to Cash ratio.  Float is "Long Enduring" as WEB says.  Especially when its profitably underwritten.  And if WEB could deploy $80B today on a business with strong moat at his price, he would wire funds on a handshake and Charlie would be cheering him on the whole way!  Float to Cash conversation would not enter the room.  IMO. 

 

First post. 

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Great first post, @longterminvestor and welcome to CoBF.

 

I agree with your last point. If the right deal comes along at the right price it doesn't matter if the market is high or low. If the deal happens to be $100 billion, I'm sure they'd be content to use $20bn of debt to retain the $20 billion cash cushion while they either liquidate some of the stock positions or simply accumulate cash from operations and dividends received.

 

The times when cash has dipped below float have typically been when great deployment opportunities have arisen, and while they tend to coincide more-or-less with recessions and bear markets due to the lack of competition from less disciplined capital, it seems to be the right deals at the right prices that drive it. Effectively the float leverage really gets supercharged during times when quality assets are cheap (prices like fair assets), then it returns to normal by float being roughly equal to cash when assets get more expensive.

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