Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2013

by Carol J. Loomis

For Berkshire shareholders the fresh ideas that probably matter most are those that come out of the company’s core insurance company, National Indemnity. Over the years the insurer has built a worldwide reputation for its willingness to write a policy covering just about any risk, of almost any size (though the company always caps its exposure), if the premium is satisfactory. Figuring the odds on these policies is a joint project of Buffett and Ajit Jain—both eminently suited to the game—and the two sometimes take Berkshire into weird territory. It would require pages to discuss that terrain fully, but here’s an example: Last year they wrote a policy protecting Grab.com against having to pay a $1 billion prize (with a present value of $170 million), a lure that Grab.com used to attract millions of people to its Internet site, so as to gather information about them that would be useful to marketers. The game for visitors to the site was to pick seven numbers between one and 77; bulletins warned that the odds against anybody’s picking the right seven were formidable. Nobody knew that better than Buffett and Jain, and in fact no one did win. But obviously somebody could have, which would have put a huge hole in Berkshire’s earnings. “I wouldn’t have thrown a party if we had had to pay off,” says Buffett, “but we take well-judged chances like that all the time. That’s what we do that almost no one else is willing to do.”