With a $70 billion net worth, Warren Buffet is one of the world’s wealthiest investors. His company, Berkshire Hathaway, is a heavy investor in the insurance industry, generating billions in premiums. Over the past decade, Berkshire Hathaway has amassed a significant war chest of available cash flow reserves that have yet to be paid out to cover insurance claims in the future. The company has used these reserves to purchase and revitalize struggling businesses.
The lifeblood of Warren Buffett’s cash flow system—insurance premiums—inspired my Bank Strategy well over a decade ago. This involves creating insurance policies to generate premiums using credit spreads on the financial market. I create these credit spreads on the diversified portfolio of the S&P 500, which is a basket of the leading and largest 500 capital stocks in the world. I don’t create contracts on individual stocks because they are too volatile. Creating them on the entire S&P 500 gives me more control and less market volatility.
How it works is like this: I create an insurance policy on the performance of the S&P 500. Speculators and hedge fund managers buy these policies to hedge their bets. These contract buyers are “worried bulls,” meaning they believe the market is going up, but they want to mitigate their risk. If the market goes up, they’re only out the relatively low amount they’ve paid for insurance premiums. If the market goes down and they lose money, the insurance policy pays out to restore what they lost. I’m protected as the contract holder because I’ve created my contract at a price significantly below the current trading price of the S&P 500. In other words, the entire S&P500 index would have to seriously plummet for us to be at any risk.
Insurance companies are so stable and profitable because they mathematically stack the odds in their favor; only a small fraction of policyholders ever make a claim on their insurance, and the insurance companies keep the majority of the premiums. I apply the same mathematical methodology but on the financial markets.
As a form of cash flow to be used for purchasing assets and other investment purposes, I incorporate the Bank Strategy in the same manner. Insurance policies have expiration dates. I do the exact same thing, but my insurance contracts in the financial markets have a lifespan of just six days, minimizing my risk in the market. I identify a “safe zone” and create an insurance policy contract at a certain price below the current market activity each Friday and close out the contracts the following Thursday. I do this every week, four times per month and it only takes a few minutes to transact.
I originally shared this system of cash flow generation with high-end coaching clients, and I opened it to the general public in July of 2012. The average client monthly return since inception is 1.7% and 20.4% annually. This is backed up with live trading, historical and statistical data. After any negative month, we normally make our money back within two to three weeks in the following month.
This lazy “money game” strategy, with its mathematical probability (if played correctly), has serious appeal. In a free-market economy, there are no borders or restrictions as to how much money anyone can generate. Your ethnicity, highest level of education, letters after your name or IQ is irrelevant when it comes to generating it.
To learn more about the Bank Strategy, visit www.5Day- Weekend.com.
In my next post, I’ll explore another excellent way to generate cash flow: storage units.
In the meantime, I’d love to hear from you – what are your thoughts about this remarkable bank strategy? Do you feel it’s something you could profit from? Thank you for sharing.
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