Your 2008/2009 Experience

[giofranchi]

I'd guess the float was helpful in early years bit probably not so much now.

 

I think otherwise… The larger you become, the more difficult it is to get satisfactory unlevered investment results, the more useful float becomes.  :)

 

Gio

 

[giofranchi]

I think Berkshire doesn't have to sequester any money for insurance because they have relatively smaller insurance operations relative to their total pie.  I believe the cash they have on hand for catastrophe events is actually just uninvested insurance float.

 

Maybe the Berkshire of today… Yes! But what about the Berkshire of 1993? As I have shown before, the Berkshire of 1993 still relied almost completely on insurance + investing. And it was much more similar to today’s FFH than many people realize. Yet, Mr. Buffett, an outstanding investor by any possible definition, decided to link his financial success to the combination of insurance + investing, instead of to just keep on investing capital.

 

Gio

 

[lu_hawk]

I think it would be instructive to see what % of folks on here were investing before 2008-2009 and went through that time period.  I say that because the market in 2007 was not all that different from now: valuations stretched in general, if you stuck with the "shooting fish in a barrel" approach to investing then you would have a very tough time being fully invested, and many people had a hard time keeping strict discipline when everyone around them was making a lot of money.

 

But if you did get fully invested or close to it by buying things that looked relatively cheap, especially if you were in small caps and other stuff that was not very liquid, then you lost over 50% when the market fell, and could have easily lost 80% (plenty of seemingly smart investors suffered losses of this magnitude).  And if you were fully invested then not only did you see your net worth decline dramatically, but much more importantly, you did not have the cash available to buy during a possibly once-in-a-lifetime opportunity.  After all, you can always buy stocks at 15x-20x earnings, but huge portions of the market selling at 5x or less?  It's those kinds of rare opportunities that you need to be able to capitalize on.

 

It seems the sentiment on this board is firmly in the "greedy" area of the greed/fear spectrum (lots of posts about "What are you BUYING today?" for example).  The market for the past 5 years has seemingly indiscriminately rewarded owning stocks, and some of the worst companies have rewarded shareholders the most (e.g., the highest returns are among the most highly shorted stocks). 

 

And for people that weren't around during 2008-2009, it would serve well to remember this, that the market has indiscriminately rewarded owning stocks.  You may be a very smart investor, but what I am saying that your returns over the past 5 years may not be an accurate assessment on who is smart and who is not.  After all, the last 5 years is the ONLY 5 year period ever that Buffett has not grown book value in excess of the return on the S&P 500.  Some will quickly dismiss this because Buffett has too much capital and cannot buy the things that the members of this board can buy, but I would venture that this shows that performance over the last 5 years is not necessarily indicative of skill or predictive of future performance.

 

Be greedy when others are fearful, and fearful when others are greedy.  You have to get both of those right for either of them to work.