How Warren Buffett Borrows $77 Billion for Free???
Posted in the Banking Forum
#1 Mar 9, 2014
Read this: By Jordan Wathen | More Articles | Save For Later
March 8, 2014 - What makes Warren Buffett the greatest capitalist of all time?
A 2013 study discovered Warren Buffett is a great stock picker. But the "special sauce" in the Buffett formula is his use of leverage -- using borrowed money to make investments.
Multiplying your returns
Leverage can have tremendous impact on your investment returns. But unlike you and I, who would have to pay as much as 5-8% per year to borrow money, Buffett pays nothing.
Berkshire Hathaway (NYSE: BRK-A )(NYSE: BRK-B ) currently benefits from a $77.2 billion loan on which it pays zero percent interest.
Berkshire borrows this money from its customers -- its insurance customers. Each time customers make a payment on their insurance policies, Buffett gets to use the money until it is paid back out in claims. Between these time periods, Buffett enjoys the full use of interest-free financing and the investment returns that come from his investments.
The numerical value of free money
Over time, Warren Buffett's interest-free loans have only grown. Here is a chart of Berkshire Hathaway's insurance float since 1970:
My point: Warren Buffet may be smart but not respected...It is his own interest vs. all others!!! For the History Book!!!
#2 Mar 9, 2014
There are also risks involved: The Risk Behind Buffett's Advice
by John S. Tobey Contributor -
Warren Buffett’s investment advice echoes the long-term stock investors’ refrain:“Buy and hold.” Further, adopting academics’(and Jack Bogle’s) beliefs, he advises holding an inexpensive S&P 500 index fund. That sounds easy. And, coming from the master, undoubtedly profitable. We only need to look at a long-term stock index chart to prove the wisdom and ease of following it. But wait…
About that long-term graph – it’s flawed. It lacks the two key adjustments needed to provide an accurate, historical picture. Without it, RETURNS are overstated and RISKS, understated. Once done, the adjustments show a more complicated picture, one that raises doubts not only about Buffett’s advice, but also about any long-term strategy involving the stock market.
The point: One needs to look at Warren Buffet more closely before drawing a conclusion!!! Too many loud mouths in America!!!
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