Who Holds the Float?
It turns out that David (our creative director) is passionate not only about high quality content, but also March Madness. This was probably helped by the fact that his alma mater Mizzou made the tournament as a frisky 7 seed (although the high variance team flamed out in the second round), but motives aside it was good for the office vibe. We made tee shirts, ordered wings, had contests, and watched the games. Of course, he also administered a bracket challenge. It was $10 to enter and he required that you pay upfront (the Challenge, I might add, was won by my daughter who picked San Diego State to win it all).
Ever the imp, I poked him on Slack. “Why do you get to hold the float,” I asked?
“Because it’s not my first rodeo,” he replied. “Coordinating who owes what to who at the end is a mess. Pay to play is the way.”
Which is completely a fair point, but I can never leave well enough alone. Now, for the rest of this exchange to make sense, you have to know two details:
David briefly way back when dabbled in speculating on obscure cryptocurrencies, including Polkadot.
When I think something is funny, I never let it die.
Two observations. First, it’s amazing to me that “pulling out to fiat” is part of our vernacular now. Second, even in this small example, when you pay or when you get paid and what happens to the money in between those events matters.
The term for this is “float,” and it’s how Warren Buffett built his empire. Here he is writing in his 2009 letter to Berkshire Hathaway shareholders:
He estimated that year that Berkshire’s insurance operations provided him with $62 billion of other people’s money to play with. Not bad work if you can get it, particularly if you have the investing acumen of Warren Buffett and can put that money to work making more money.
What’s the takeaway?
If you run anything from a small NCAA office pool to a multinational conglomerate, think carefully about when money moves and who gets to hold the float. If it’s not you, why not? If you’re floating other people, why? And how might you stop?
But if you do get the float, crucially don’t do something stupid with it because you’ll have to give it back eventually. Or “pull it out to fiat” as I guess the kids say.
P.S. Permanent Equity’s investing team is hiring. Click here for the details.
– By Tim Hanson
