1995: Are there restrictions on what Berkshire can buy with its float?

AUDIENCE MEMBER: Jim Moss (PH) from Los Angeles.

I was reading through your annual report. And to me, an eye-popping number in there was the amount of float in 1994, at a cost of less than zero — I think it was $3 billion.

And I was wondering if there are any restrictions on your investment of that money, or can that go into your marketable equity securities?

WARREN BUFFETT: The question relates to — we have that long table we put in — we introduced about four years ago or so in the annual report, that shows the amount of float and the cost of float.

And that’s a very important table. It — in terms of our operating businesses, that’s probably the most important piece of information in the report.

And that float is, as you noted, well over $3 billion now — last year, because of various favorable factors, including the fact that our super-cat business was favorable, but also, because our other insurance businesses did very well — amazingly well.

The cost of that float, which is money that we’re holding that eventually — does not belong to us, but will go to somebody else. The cost of that float was less than zero, and that is a very valuable asset.

And the question is, how much flexibility we have in investing that, which I think was the core of your question.

The answer is we have a lot of flexibility. We are not disadvantaged by that money being in float, as opposed to equity, really, in any significant way.

Now, if we had a very limited amount of equity and a very large amount of float, we would impose a lot of restrictions on ourselves as to how we would do it, because we would want to be very sure that we were in a position to distribute that float, in effect, to policyholders, or claimants, or whatever it may be at the time that was appropriate.

But we have so much net worth that, in effect, that float is just about as useful to us as equity money. And that means quite useful. It’s a big asset of Berkshire’s.