How Buffett Has Used Leverage To Outperform

Warren Buffett would not have been able to build Berkshire Hathaway into the corporate giant it is today without the use of leverage.

Leverage has been vital to the company's success, although not in the traditional sense. While Berkshire does borrow money, the sums borrowed are insignificant compared to the leverage achieved within the insurance division.

Leverage to boost returns

According to one study, Berkshire has leveraged its capital on average by 60% by effectively borrowing from its insurance customers.

Berkshire's insurance and reinsurance operations provide more than a third of its funding. These businesses take insurance premiums upfront and pay out claims later, effectively borrowing money from policyholders.