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Actionable insights — Warren Buffett retired (#QualityTuesday)

Three portable rules from a five-minute free post: use cash rather than profit, treat inactivity as a policy rather than a mood, and recognise the float-plus-investments structure whenever it appears.
2026-JAN-20 · Compounding Quality (Substack, free #QualityTuesday post) · Pieter Slegers · read ↗ · full analysis · transcript
How to read this page: a short free post, so only three insights — but the first is the assumption underneath most of the valuation work in this archive. Written post, so no timestamps.

1. Value on cash, not on reported profit — and know which adjustment each business needs

The repeatable method
  1. Start from reported net income, then find every non-cash charge and every cash cost the income statement omits.
  2. Ask which measure the owner actually receives: free cash flow for most, and a business-specific substitute where accounting distorts it.
  3. Use free cash flow to net income as the honesty check — above 80% is the house threshold, above 100% is unusually clean.
  4. Value on that measure consistently, including when it makes a company you like look worse.
Here, in its shortest form: "Profit is an opinion, cash (flow) is a fact. Many investors confuse Free Cash Flow with Net Income. Knowing the difference between these two is crucial." Across the archive this becomes four different substitutions for the same reason: FCFA2S for CSU.TO and TOI.V, NPATA for KPG.AX, Distributable Earnings for BN, and EPS instead of FCF for NVO because of heavy growth capital spending (15 January).
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2. Make inactivity a written policy, not a temperament

The repeatable method
  1. Set a default of no action, and require a stated reason to override it — a thesis break, not a price move.
  2. Count your own turnover annually and compare it with what you intended, since the two diverge quietly.
  3. Distinguish trades that change the portfolio's composition from trades that only change its timing; only the first should ever be allowed.
  4. Write the rule down while nothing is happening, because it is unenforceable in a drawdown otherwise.
Here: "Your investment portfolio is like a bar of soap. The more you touch it, the smaller it gets. That's why doing nothing is often your best bet. Time in the market always beats timing the market." Worth reading against the same month's behaviour — a full position switch nine days later — and against the point where it becomes binding policy: the 1 September letter's "low turnover, no market timing" rule.
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3. Recognise the float-plus-investments structure, and check both engines separately

The repeatable method
  1. Identify businesses that collect cash years before they must pay it out — insurers above all.
  2. Test engine one on its own: is the underwriting profitable before any investment income? A combined ratio under 100 means the float is free.
  3. Test engine two separately: what is the float invested in, at what return, and who decides.
  4. Reject the structure where the underwriting loses money, because then the float is borrowed at a cost rather than supplied for nothing.
Here: "MKL collects premiums first and, over time, pays out less in claims than it takes in to generate a profit. The premiums it holds before paying claims ('float') are then invested in stocks, bonds, and private businesses to make more money… often called a mini-Berkshire Hathaway." The identical structure is praised in Fairfax — "they make money from insurance. Then they invest that money to make even more money" — and is the original at BRK.B. Three names, one machine.
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Methods distilled from the archived Compounding Quality post for personal study. Not investment advice.