Qiao Xiaobai: I have always believed in Buffett 's value investment, but recently I found that it is too difficult to actually operate it.
Boss Qian: Why do you believe in value investing?
Qiao Xiaobai: The logic of value investing is simple and clear. Buying stocks means buying companies. Find good companies whose stock prices are undervalued, and then buy them and hold them for the long term.
Boss Qian: What problems did you encounter during operation?
Qiao Xiaobai: How can be considered to be undervalued? What is a good company? There is no standard answer to this .
What is more difficult is long-term holding. It is easy to say but difficult to do. There are often sudden needs for money. How to hold it for a long time?
Boss Qian: Many retail investors imitate Buffett’s but their posture is not right at the beginning.
Qiao Xiaobai: Did I learn it correctly?
Boss Qian: Let me ask you two questions.
First, does Buffett use to leverage when investing?
Second, Buffett’s company Berkshire What kind of company is it?
Qiao Xiaobai: Buffett does not use leverage. He has a famous saying: If a person is smart enough, he does not need to use leverage. If a person is not smart enough, he should not use leverage.
Berkshire was originally a textile factory and is now an investment company .
Boss Qian: I’m sorry to tell you that you haven’t learned the essence of Buffett either.
Because you answered both questions wrong.
Qiao Xiaobai: No, does Buffett also use leverage in his investments? Berkshire is not an investment company?
Boss Qian: Yes, Buffett is the best at using leverage. To make this clear, you have to understand that Berkshire is actually an insurance company.
Berkshire is the world's largest insurance company and has long occupied the top spot in the Fortune 500 insurance industry.
Qiao Xiaobai: You are right to say that Berkshire is an insurance company. Buffett has indeed always paid special attention to the company's insurance business.
In 2022, at Berkshire's shareholders' meeting, Buffett and Charlie Munger "insurance" was mentioned more than 30 times in a six-hour question and answer session.
Berkshire is an insurance company, what does it have to do with Buffett being a leverage master?
Boss Qian: The relationship is huge. If it weren’t for insurance companies, Buffett would never have become the stock god he is today.
Do you know why Buffett doesn't encounter the problem of suddenly having to sell stock for money?
Qiao Xiaobai: Is it because Buffett is very rich?
Boss Qian: No, Buffett is very rich now, but he was not as rich as he is now a few decades ago. At that time, he did not encounter the problem of selling stocks when he needed money.
Qiao Xiaobai: Why? It's not like he has a steady stream of money to invest.
Boss Qian: You are right, for this reason, Buffett has a steady stream of money to invest.
Qiao Xiaobai: How is this possible?
Boss Qian: This will require the insurance company’s float.
Qiao Xiaobai: What is float in ?
Boss Qian: The process of insurance business is that customers pay the premium first, and if the claim settlement conditions are met, they will receive compensation.
Insurance companies usually retain part of the premiums paid by customers first to deal with possible claims in the near future. The remaining part can be used for investment, and the investment income belongs to the insurance company.
The remaining funds that can be used for investment are float funds.
Qiao Xiaobai: No wonder Buffett likes insurance companies so much. The float of insurance companies provides a steady stream of funds for his investments.
Boss Qian: Yes, and floating gold can always be used, so Buffett said many times, "I like our floating gold the most."
Qiao Xiaobai: In other words, floating gold is Buffett's leverage.
Qian Boss: Yes, other investors, if they want to use leverage, they need to pay a certain capital cost, but if the insurance company's business makes money, the floating deposit used to invest in this part will not only have no cost, but even have negative costs.
Buffett used the metaphor to say: It's like you take a loan from a bank. Not only do you not need to pay interest, but the bank also pays interest to you. Is there any better profit model than this?
Qiao Xiaobai: Oh my God, this is so beautiful.
Qian Boss: Floating deposits provide Buffett with a steady stream of cash flow in investment, which can be used for additional investment or stock market bottom , which is also one of the important reasons why the investment community believes that it prompts Buffett to become a "stock god".
If you want to fully describe the career of Buffett’s life, it should be: find long-term funds with low interest rates, and then allocate them to high-return companies that can generate cash flow.
Charlie Munger summarized Berkshire's business model in this way: " We are like hedgehogs, we only know one trick, which is to find floating gold with a cost of less than 3%, and then invest it in companies that can generate 13% returns. "
Qiao Xiaobai: No wonder you say that many people learn from Buffett, but their posture is not right at the beginning. Optical value investment is useless. You also need to find a continuous financing method like floating gold.
But no matter how good the floating deposit is, it is impossible for ordinary people to acquire an insurance company.
Qian Boss: Not only floating deposits, but also prepaid in advance such as annual fitness card fees, hair salon membership fees, etc., which can be used for a period of time in advance, but actually have similar functions.
However, some are too small, and some have a short term, which is not as suitable as insurance floating deposits. The amount is large and the service life is long.
And floating gold is just one of the key points, and the other key is whether you can make good use of the ability to invest in floating gold.
Chinese insurance companies also have huge floating deposits, but without the investment skills like Buffett and Charlie Munger , many companies not only fail to make money in their investments, but instead lose a lot of money.
For example, many insurance companies in China have invested in real estate companies before, but real estate has declined in recent years, and these insurance companies have suffered heavy losses.
Insurance company with floating deposits and professional investment teams is the most suitable for learning Buffett, but even they can't learn well, and it's even more difficult for ordinary people without floating deposits.
Qiao Xiaobai: It seems that I can’t learn from Buffett.
Boss Qian: If you can't find a source of funds similar to floating deposits, it is indeed difficult. As you said, there are too many places to use money, and it is difficult to insist on long-term investment.
However, if you can find a source of funds similar to floating deposits, or spend the spare money from your salary income every month that you don’t use for a long time, according to the principle of value investment, you can’t become Buffett, but it is a high probability event to become richer and richer.
Of course, you need to change your style and learn to invest in in the short term is also a way to try. Which path is suitable for
requires you to continue to study and explore.
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