What part of the 19.9% return is attributed in your opinion to leverage i.e. if no leverage was used what would have been the return?
Does the current market price of the share already has the premium built in for existence of the insurance float?
Does the climate change increase the risks significantly for the underwritiong business. Is the underlying business diversified enough to withstand a major claim event?
1. I don't know what part of the 19.9% return can all be attributed to leverage. It is clear that a significant part of the overage came from the availability of float, but exactly how much I can't say. I recently read a tweet thread with a calculation of how much this is, but I can't find it now. Obviously some of his overage has come from spectacular purchases like Sea's candies, GEICO and National Indemnity, all with very successful track record of generating profits, specifically related to their purchase prices, even after excluding float generation.
2. I don't know if that is the case. Most investors I speak to don't even read about Berkshire, and so the "market price" in case of Berkshire seems to be more reflective of their holdings in equities (which arbitrageurs would have found the weights of), and the rest of the business just left at some safe multiple. However, my circle of investors is infinitely tiny, so who knows how much of the ledger is among literate investors, leaving aside ETF and index holdings.
3. Climate change itself isn't an issue as premiums increase in response to these changes. The underlying business is already well documented to be able to withstand a mega-catastrophe of about $400Bn, which roughly would mean $12Bn in underwriting losses, which is still well below operating income across all subsidiaries. Just to set context, the hurricanes in 2017 (which was a big season including Hurricane Irma), was a $100Bn event. Read the 2017 annual report pages 7-8 for a commentary on this.
Amazing article. A few questions:
What part of the 19.9% return is attributed in your opinion to leverage i.e. if no leverage was used what would have been the return?
Does the current market price of the share already has the premium built in for existence of the insurance float?
Does the climate change increase the risks significantly for the underwritiong business. Is the underlying business diversified enough to withstand a major claim event?
1. I don't know what part of the 19.9% return can all be attributed to leverage. It is clear that a significant part of the overage came from the availability of float, but exactly how much I can't say. I recently read a tweet thread with a calculation of how much this is, but I can't find it now. Obviously some of his overage has come from spectacular purchases like Sea's candies, GEICO and National Indemnity, all with very successful track record of generating profits, specifically related to their purchase prices, even after excluding float generation.
2. I don't know if that is the case. Most investors I speak to don't even read about Berkshire, and so the "market price" in case of Berkshire seems to be more reflective of their holdings in equities (which arbitrageurs would have found the weights of), and the rest of the business just left at some safe multiple. However, my circle of investors is infinitely tiny, so who knows how much of the ledger is among literate investors, leaving aside ETF and index holdings.
3. Climate change itself isn't an issue as premiums increase in response to these changes. The underlying business is already well documented to be able to withstand a mega-catastrophe of about $400Bn, which roughly would mean $12Bn in underwriting losses, which is still well below operating income across all subsidiaries. Just to set context, the hurricanes in 2017 (which was a big season including Hurricane Irma), was a $100Bn event. Read the 2017 annual report pages 7-8 for a commentary on this.