I’ve been getting a couple of messages about my thoughts on Warren Buffett’s new purchase of UnitedHealth shares. And while I don’t have any direct views on Berkshire Hathaway’s new stake in a health insurance business, I do think it’s an excellent time for everyday retail investors to learn exactly *how* Warren Buffett made the purchase and where the money came from.
If you read *The Snowball*, you know that Buffett loves insurance companies because they throw off huge amounts of cash each quarter in premiums—known on the investment side as “float.” A portion of these premiums are squirreled away to pay for claims, but the rest is free cash that can be used to buy other companies under the Berkshire Hathaway umbrella.
This is why Buffett prefers to own 100% of businesses so he can control the float. It’s a very simple principle that most retail investors overlook, but anyone of us can implement this same strategy by utilizing consumer credit.
For more on the specifics, check out earlier articles:
* [***Flat Broke with Plenty of Float***](https://www.reddit.com/r/CountryDumb/comments/1hmgnvj/flat_broke_with_plenty_of_float_lesson_from_the/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
* [***Don't Work for Money. Let Money Work for You***](https://www.reddit.com/r/CountryDumb/comments/1gy25hh/dont_work_for_money_let_money_work_for_you/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
# Maximizing Your Poor-Man's Float
If you're going to try to utilize your access to consumer credit in the midst of an economic downturn... as described in the two previous articles, it’s essential that you maintain as much dry powder as possible. This means paying down ALL credit card debt when markets are high—like NOW—which will give your credit score the time it needs to recover. The higher the better, because the more you pad your credit score today, the more access to “free float” you’ll have when you need it in a hurry.
Take a look:
https://preview.redd.it/akh6mxuuk7jf1.jpg?width=714&format=pjpg&auto=webp&s=fc819ff04fe81e0b63c34e3e1f9932fe9d4a11cd
Because I used about a dozen credit card applications to maximize my purchasing power when markets were down, I got the cards, but my credit score plummeted to about 600. But after paying them all off last month with profits made in the stock market, I’ve gained back about 100 points and will soon be back above 800 in about six months or so.
*For reference, your credit score must be above 750 for you to get the best rate on a mortgage, which is something I’ll need should the ATYR trade work out and we choose to move to a better school district for our children.*
But for most people on this blog, you’ll want your credit score to be sky high so you can get the good cards, which have 12-18 months of free float built into their “introductory periods.”
The same goes with car payments. Pay that shit off. NOW! So you’ll be ready should you need to put a lien against a vehicle to raise cash.
So if you’re sitting on the sidelines and just itching to do something, this is it! Pay off all of your debt immediately so you’ll be ready to pounce when it counts. And if you don't have credit established, apply for one credit card that doesn't have an introductory period, but good rewards like gas or cash back, then swipe plastic on all your everyday expenses and ALWAYS pay the thing off at the end of each month. This is the fastest way to establish a healthy credit score.
And better yet, once you've successfully padded your credit score, build a war chest of cash and wait for a stock picker's paradise. It's that simple.
Hope this helps,
Tweedle