Charlie Munger has advised we must assign a premium to the value of float , I always have, and assume as a disciple you should too. I would never have held Berkshire this long had I not. I would have estimated lower intrinsic value otherwise.

Equity has a required return. Float may not.

Shareholders expect 8–10% (or more) over time.
Policyholders do not expect an investment return — they expect claims to be paid.

If underwriting breaks even, float costs 0%.
If underwriting is profitable, float has a negative cost.

So if you can invest at 8%:
• Equity earns 8% but must justify 8–10%.
• Float earns 8% and only needs to justify 0%.

That difference — the spread — is economic value.

equity earning 8% isn’t automatically value creation.


If equity requires 9–10%, then 8% is actually destruction of value relative to opportunity cost.

Float earning 8% with a 0% cost?

That’s pure spread.

That’s the entire engine of Berkshire’s compounding story.

I know this is High School economics to many. But I suspect many if not most of our “partners” don’t understand this. We can disagree over the ACTUAL value. But it’s added value make no mistake about it.

Berkshire Hathaway FAQ

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