Dr. Clemen Chiang

Bill Ackman explains where Berkshire Hathaway’s compounding really came from and why so few have copied it “There’s a book, I think it’s called The Financial History of Berkshire Hathaway, and that’s for geeks. Basically this guy went back and read every 10-Q, whatever, he actually went through the filings, looked at every deal that Buffett ever did, and you follow him over a 60-year period of time. And the vast majority of the value he created at Berkshire was through it actually the ownership of insurance operation.” “And what’s interesting about insurance is that, running an insurance company, you have two jobs. One is you write business, right? You take risk. You collect premiums in exchange for the obligation to pay future claims. And then you get that, you get money up front, and your responsibility is to invest that money.” “The vast majority of insurance companies focus only on the liability side of the balance sheet. Buffett was really the first to do focus on actually more on the asset side of the balance sheet than on the liability side. And over time on the liability side, if you manage the assets of an insurance company well and the liabilities well, you can build this enormously profitable compounding tax-efficient machine over time. And the question is, why haven’t other people done this?” “And the answer is, if you’re really good at investing, you go work for a hedge fund, you go work for Fidelity, you go work for Wellington, but you don’t go work for an insurance company. So the insurance company’s ability to recruit investment talent is very limited. Buffett owned half the company. He was really good at investing, which is why it worked.”