Bank of America: Screaming Bargain Or Just Another Value Trap?

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  1. Warren always wins because his cost of capital is zero. The real genius of Warren Buffet is that he can raise premiums at whatever compound targeted rate he believes the market will take. He then buys equities that for the most part lack luster yet his returns are better than most everyone. The reason for it is simple, he never uses his own resources, his cost of capital is zero and the lines of insurance he writes is consumer or business buyer take it or leave it premium pricing. He is one of the only insurance based organizations that writes 1 dollar of premium to 1 dollar of capital. Most others write 3 to 1. So while he looks like the greatest investor, the real action is that he is given free capital at a year compound rate year to year that he determines in advance. If loses the capital, he simply raises premium at his insurance subsidiaries. If only I had realized this simple technique years ago.


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