A group of statisticians has analyzed Warren Buffett's investing returns. By looking at Berkshire Hathaway's 13F filings, they estimate that Buffett's public stock investments have outperformed the market by a much narrower margin than Berkshire's growth in book value. They conclude that Buffett has enhanced his returns with cheap leverage, calculating that the effective interest rate on Berkshire's insurance float has historically been less than the T-bill rate.
In their own words:
"In summary, we find that Buffett has developed a unique access to leverage that he has invested in safe, high-quality, cheap stocks and that these key characteristics can largely explain his impressive performance."
Their study is imperfect because the 13F filings don't list all of Berkshire's investments. It's possible that Buffett's distressed-debt investments have earned much higher returns than his stock investments, in which case insurance float would have contributed less to his returns than the paper suggests. (On the other hand, the statisticians argue that Buffett's private investments have earned much lower returns than his stock investments.)
Nonetheless, it makes a compelling argument that Buffett's has increased his returns with a uncommon form of leverage. This goes against the typical narrative of Buffett's success. For instance, in the introduction to Buffett: The Making of an American Capitalist, Roger Lowenstein writes that "Most of what Buffett did was imitable by the average person" and "As an investor, Buffett eschewed the use of leverage."
Most of what Buffett does may or may not be imitable, but the one thing that sets him apart from other skilled investors-- the cheap leverage-- definitely isn't. Without talented insurance executives to underwrite well, the cost of Berkshire's float would not have been so low. Without Ajit Jain and his predecessors, Buffett would not be Buffett. Prem Watsa at Fairfax Financial tried to copy Buffett's strategy of investing insurance float, and Fairfax nearly blew up even though Watsa's returns have been comparable to Buffett's.
Contrary to the perception that Buffett is the greatest investor alive, his unlevered returns are good but no higher than those of many other people. It's his business model that's exceptional. Investors should keep that in mind whenever Buffett opines about valuations, the economy, or the likely level of future stock-market returns. His opinions about these things aren't what made him uniquely rich, so they aren't uniquely valuable.