This excerpt from Alice Schroeder's "The Snowball" caught my eye. She writes of the 1973-1974 period [my emphasis in bold]:
The novelty and strength of Berkshire's model cannot be overstated. Nothing like it existed, or would for years to come. "That was the golden period of textbook capital allocation," he says.
The timing was stupendous. Capital from the insurance companies was pouring into Berkshire and DRC at the same time that the market was collapsing, the environment that Buffett liked best.
As I've argued before, the ability to spot undervalued investments, which many claim these days, is only half the story. The other half is having the capital available to do so. In the 1974 bear market Buffett nailed it perfectly--he hit on insurance float as a way to generate low-cost capital for investment just at the time great investment opportunities were emerging.
A modest prediction: Look for Berkshire to do it again this time around. I would not be surprised to see above-average growth in float, perhaps at the expense of underwriting profits, as Buffett looks to generate as much capital as possible with which to invest at favorable expected returns. In a world where it's almost impossible to borrow money in size from banks, the ability of a good insurance company to "borrow" from policyholders is a huge advantage.
A related point: In looking at current investment opportunities, I'm placing great weight on a company's ability to generate capital for reallocation purposes. That could mean cash already on the balance sheet, a high ROE, or the ability to borrow.