If you beat the S&P 500 for a decade, you are considered an elite investor. Warren Buffett has doubled the market’s annual return for over 60 years. Since 1965, Berkshire Hathaway has grown at a roughly 20% compounded annual rate, representing a total gain of over 5,500,000%.
The foundation of this massive success is Berkshire Hathaway’s insurance business. It provides “float”—premiums paid to the insurer that have not yet been paid out as claims. This float acts as an interest-free loan on the balance sheet, allowing Buffett to invest the money and earn a profitable return.
Coupled with a shift from buying “cigar butt” companies to buying quality companies at reasonable prices to hold forever, Buffett used this float to amass billion-dollar positions in companies like American Express, Coca-Cola, and Apple. Simultaneously, Berkshire outright owns over 50 businesses, including GEICO, Dairy Queen, and BNSF.