Many people consider Warren Buffett one of the best individual investors of all time. Today we’re going to take a note from Warren and think in decades instead of focusing on the short-term gratification that we’re so used to.
There’s certainly something to learn from Warren Buffett and the way he thinks about using money and earning money. He’s earned the nickname “The Oracle of Omaha,” and it’s well deserved because his track record is impeccable. Now, are there times when his portfolio is down? Absolutely. But the reality is, again, because he thinks long term because he thinks in decades he’s very comfortable owning some of the stocks and companies that he purchased at the prices in which he purchased them. It doesn’t mean he overpaid, even if the value of that stock went down 20 or 30 percent directly after he bought it. When Warren Buffett makes a purchase, he’s very confident that if he holds that position long term, he’ll make the returns that he needs or wants because he’s patient and he thinks long term.
Many believe Warren Buffett’s success is due to that long-term growth mindset, his guaranteed growth strategies, and strategic cash positioning. That mirrors a lot of what we talk about when it comes to purchasing whole life insurance for cash value accumulation. How can we have guaranteed growth, backed by contractual guarantees, and gain access to that capital? With that access comes the ability to use it strategically when opportunities arise.
Warren Buffett likes insurance companies whether they’re property and casualty, life insurance, or reinsurance because they have consistent cash flow coming in. He’s able to deploy that cash flow into areas where he can get a significant rate of return. He’s looking at guaranteed premiums, guaranteed cash flow, and guaranteed cash accumulation. And all of a sudden, he’s able to use the float, so to speak, and deploy that capital in ways that are beneficial to him and his companies.
With a life insurance policy loan, that looks like taking a policy loan to take advantage of an investment opportunity, paying the loan interest, and earning a higher rate of return on that investment. Once that investment performs, you can put the borrowed money back into the policy and still earn a reasonable return. It’s a smart strategy.
You’re using the guaranteed growth of the cash inside the policy and deploying it to create an external rate of return whether in an investment, real estate, your business, or even to pay off debt. Either way, you’re using your money strategically. And what people don’t realize is that in the process, they’re gaining control.
Because with that guaranteed access and guaranteed growth inside the policy, taking a loan doesn’t stop the policy from performing. In most cases, your policy will continue to grow just as if you hadn’t taken a loan. That means you can borrow from the insurance company, use that capital to take care of other priorities paying off debt, buying a property, investing in stocks and at the same time, your policy continues growing. You’re earning an external rate of return while still earning your internal rate of return. That’s a key feature.
We started talking about Warren Buffett and how he’s known as one of the greatest investors of all time, but really, he’s just focused on fundamentals. Blocking and tackling. Simple strategies. The problem is, most people don’t have the discipline. Most people don’t have the long-term thinking that he has. And that creates issues. Also, let’s be honest, Warren Buffett has access to capital. Most people don’t. So the real question becomes: why is that?
One of our specialties is looking at people’s financial position and finding areas where they’re giving up control of their money, and helping them use that money more efficiently. The goal is to put them in a stronger financial position so they have access to cash when opportunity strikes. Because at the end of the day, it’s not about chasing high rates of return. That’s what a lot of people tend to focus on but it can be a losing game depending on timing, markets, and things outside your control. Instead, it’s about having access to capital in any situation whether the economy is booming or in crisis.
That’s especially important as we move into a recession. One of the first things to disappear during a recession is access to capital. So how do you position yourself now to be in control of a pool of money that you can tap into when opportunities present themselves?
That’s the key: having options. The more options you have, the better positioned you are to handle whatever comes your way good, bad, or indifferent.
If you don’t have access to capital, you may not even see the opportunities around you. People know if you don’t have cash, you’re not in a position to act. But when you do have a pool of capital, the opportunities start flowing in.
There’s an old saying: when you have access to capital, opportunities will find you. And they absolutely do.
Let’s talk about how this applies specifically to small businesses. How can small businesses use this strategy to put themselves in a stronger position?
If a business is under financial or cash flow stress, they may be tempted to sell at the wrong time. You have to exit your business one way or another. And the reality is, in most cases, 90 percent of a business owner’s wealth is tied up in the business.
So when they go to monetize or capitalize on that business, they’re often forced to accept a lowball offer. They’re in a desperate position. But having access to capital liquid capital in a policy can prevent a business owner from selling at the wrong time or under bad terms.
Warren Buffett’s rules actually mirror Nelson Nash’s rules in many ways. Think long term. Don’t be afraid to capitalize. Don’t steal the peas. Don’t deal with banks.
In a lot of ways, Buffett is following those same principles.
Long-term thinking. Guaranteed cash. Being in control of the finance function and not being at the mercy of others. That’s what increases your options. And that’s exactly what Nelson taught.
Nelson Nash was trained as a forester. He studied forestry in college. He was trained to think 70 years ahead. He knew he wouldn’t be around to see the full outcome of the decisions he made but he made those decisions anyway, for future generations.
Three months before he passed away, Nelson called me and said, “Look what we created.” The reality is, I didn’t have much to do with it. But then he said, “I was trained as a forester, and a tree can’t grow unless it has fertile soil. You were fertile soil. You took my message and shared it with the world. And for that, I’m thankful.” That moment was powerful. It brought everything full circle.
The bottom line is this: whether you apply the principles of Warren Buffett or Nelson Nash, these foundational ideas long-term thinking, capital control, financial independence will make your life, your business, and your future better, simpler, and more stable.
If you’d like to learn more about how to put these principles to work for you, your family, and your business, visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.
Thanks for reading, and remember it’s not how much money you make, it’s how much money you keep that really matters.