Registered: Apr 2011
09-17-12 12:54 PM
Quote from billyjoerob:
p. 395, Snowball by Alice Schroeder:
"He was now  very, very rich but cash poor. The companies he controlled, especially Berkshire, had cash to buy stocks, however. To move some of Berkshire's money to Diversified [a retailing company owned by Buffett], Buffett set up a reinsurance company in Diversified."
So Diversified was a reinsurer of the Berkshire insurance company and therefore received premiums. Diversified would merge with Berkshire in 1978.
"Buffett began to buy stocks for Diversified. Principally he followed the Wattles model and bought stock in Blue Chip and Berkshire. Soon, Diversified would own 10% of Berkshire. It was almost as if Berkshire was buying back its own stock -- but not quite."
Interesting. I read those pages on Amazon. It was pretty sneaky. He basically used a company he controlled (Diversified) to receive cash from Berkshire so he could cement his control of Berkshire and Diversified.
He basically built a perpetual motion machine of money through the acquisition of insurance companies and then used that money to obtain control of those companies.