Leverage can blow investors up, but it also can be useful in the right context and with proper limits and safeguards. Even Buffett has used (and continues to use) insurance float as a form of low-risk leverage to improve returns.
While small investors don't have access to insurance float, that may not be a bad thing as insurance has other risks that can be hard to anticipate and cause enormous losses, such as those relating to natural disasters.
The key takeaway is that Buffett used a 1.6-to-1 leverage ratio, which meant that he kept most of his principal, even in the event of a bear market (20%+ drawdown), and was able to last until the bull market returned.
Don’t use leverage.
Leverage can blow investors up, but it also can be useful in the right context and with proper limits and safeguards. Even Buffett has used (and continues to use) insurance float as a form of low-risk leverage to improve returns.
Yes, but for us, small investors, leverage of that kind isn’t accessible yet. Any ideas on how to implement it now?
While small investors don't have access to insurance float, that may not be a bad thing as insurance has other risks that can be hard to anticipate and cause enormous losses, such as those relating to natural disasters.
The key takeaway is that Buffett used a 1.6-to-1 leverage ratio, which meant that he kept most of his principal, even in the event of a bear market (20%+ drawdown), and was able to last until the bull market returned.