How does Warren Buffett invest without leverage or borrowing?
Warren Buffett invests big in billions at a time and he don't use leverage or borrow money from wealthy investors like hedge funds do. So, my question is that, where does he find the money to invest that big. I know he has his own savings but he's not having as much as he invest in his saving. How does he do it?
- ALLLv 510 years agoFavorite Answer
A great part of Buffett's genius is his business model that does use leverage, but in a way that doesn't cost him anything. The main reason a lot of his investments are in insurance companies is that these companies provide huge amounts of cash from policyholders who pay at the beginning of the policy.
Buffett writes about this often. From Berkshires 2009 annual report:
"Insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from
certain workers’ compensation accidents, payments can stretch over decades. This collect-now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains remarkably stable in relation to premium volume. Consequently, as our business grows, so does our float. "
Berkshire's float was $62 billion at the end of 2009.
When Buffett was a young man, he used leverage to became a multimillionaire by forming partnerships and sharing in their profits. He invested very little, but received a large portion of profits in exchange for his brilliant investment decisions. This was a truly win-win situation for him and his partners.
Read more about Berkshire at its website:
and you may find the "owners manual" interesting
- alcan52Lv 510 years ago
He does use leverage. Read the following and listen to this very interesting radio interview with Mary Buffett.
FSN In Depth: Mary Buffett & David Clark, Warren Buffett and the Art of Stock Arbitrage 01-26-2011
Posted: Wed, 26 Jan 2011 01:08:00 -0800
Warren Buffett and the Art of Stock Arbitrage by Mary Buffett and David Clark James J Puplava CFP Mary BuffettDavid ClarkFor the first time, the New York Times best-selling authors Mary Buffett and David Clark offer an insider's view of Warren Buffett's strategies for stock arbitrage and special situations investing--liquidations, stubs, spin-offs, and reorganizations. Long considered some of the most powerful and profitable of Warren Buffett's investment operations, they have been the least understood. Yet, these special types of investments have lifted Berkshire Hathaway's performance to record levels that have made Warren Buffett the second richest man in the world.
- mcswainLv 44 years ago
Warren Buffet grew to grow to be wealthy via making an investment in shares, on the whole in companies under 'value', popular as value making an investment. shall we are saying Apple drops to $3 hundred from its $4 hundred highs, Warren would purchase at $3 hundred and carry until it hit $4 hundred back. in assessment, boost making an investment is finding out to purchase apple at $4 hundred thinking it particularly is nicely worth $500 via fact of its historic boost as a business enterprise.
- 10 years ago
Buffett uses leverage and always has. He started out running a private investment partnership which bought Berkshire Hathaway cheap when it was the last textile company in New England and then used it as the holding company for further investments. Berkshire Hathaway has investors in its publicly traded stock and it issues bonds and has credit lines. Buffett and his partner, Charles Munger, and their families are the largest shareholders in Berkshire Hathaway.
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- ScottLv 710 years ago
With businesses like the Washington Post and Berkshire Hathaway, ol' Warren doesn't need anyone's help.
- eveLv 610 years ago
Well he does like every investor, I expect. He sells something like JNJ when it reached 66. and he buys back when it goes below 60. He then uses the profit to buy more. Im not sure if you are talking about Bershire Hathaway but you can buy it too. People reinvest their profits, of course you have to start with something but Ive heard people say they started with a few hundred and have millions now.
- JwalkerLv 410 years ago