There is a company which has the world’s strangest bond outstanding. Strange, because this bond has no maturity date. Stranger, because the bond issuer pays no interest on it. Strangest, because year after year, the issuer gets paid to have this bond on its balance sheet.
What better source of financing is there than one in which neither do you have to return the borrowed money, nor are you charged any interest to use it? In fact, you are paid to use it!
This is not a small bond issue in some obscure little country. As of end December 2011, this bond had a book value of about $71 billion and the issuer is an American company having a current market cap of $205 billion.
I am, of course, referring to the “float” enjoyed by the insurance businesses of Warren Buffett’s Berkshire Hathaway. “Float” in the insurance business, says Buffett, “arises because most policies require that premiums be prepaid and, more importantly, because it usually takes time for an insurer to hear about and resolve loss claims.”
This float, which has grown from $17 million in 1967 to an astounding $71 billion by the end of 2011, is a key reason behind Warren Buffett’s fame and fortune.
https://fundooprofessor.wordpress.com/2012/07/09/flirting-with-floats-part-i/ |
