No. of Recommendations: 15
Gemini mentions the 1998 meeting..a meeting I attended, where Buffett explicitly disagreed with you. My friend TexIrish and I along with a few other shareholders discussed this matter for many many hours. How much MORE valuable IS float? NO ONE argued less than 1.1x. The smartest Berkshire investor either of us ever knew, now deceased, argued the value was higher than either of us believed. Higher than I am now arguing.
Warren Buffett famously stated that "float has had a greater value to Berkshire than an equal amount of equity" during the 1998 Berkshire Hathaway Annual Meeting.
He elaborated on this "accounting irony" by explaining that while float is technically a liability on the balance sheet, its real economic value is superior to equity because it often comes at a negative cost—essentially meaning Berkshire is paid to hold and invest other people's money.
The Quote: "Float has had a greater value to Berkshire than an equal amount of equity... This statement would not be made if the float cost a couple percent a year, even though it would still be desirable. The current float is better than that, having a cost of less than zero with a profit attached".
The Reasoning: Replacing float with an equal amount of equity would technically increase the company's net worth, but Buffett noted it would result in less earnings for the company the following year because the float is generated through profitable underwriting.
The "Rocket Fuel" Comparison: In his 2021 Shareholder Letter, Buffett reiterated this sentiment, noting that although float is a liability, it has been "an extraordinary asset" that has grown 8,000-fold since 1967.
Key Distinctions
Cost of Capital: Buffett and Munger view float as the "best form of financing" because it is often interest-free or even profitable, whereas traditional equity or debt always carries a cost.
Economic vs. Accounting Value: On the Berkshire Hathaway balance sheet, float is recorded as a liability. However, because it is "long-enduring" and "costless," its true economic value is far higher than its accounting representation.
