GEICO: What Made Buffett Buy It?

Thank you to GuruFocus for this great post.

GEICO In 1951, Warren Buffett wrote an article about the Government Employees Insurance Company (GEICO) in the local newspaper entitled, "The Security I Like Best". The article is instructive because it clearly shows the factors that Buffett used to analyze and value a stock. The story of how Buffett came to own it provides a model of how to find and research a stock.
Buffett was first attracted to GEICO in the 50’s when he learned that his idol, Ben Graham, was chairman of the board and an owner. He thoroughly researched the company and invested three-quarters of his portfolio in the stock. Although he eventually sold his original position, in the late 70’s, he again, through Berkshire Hathaway, made a major investment in GEICO, when its share price tumbled as a result of underpricing its insurance risk. Finally, in 1996, Berkshire Hathaway purchased the balance of the company, and GEICO became a wholly owned subsidiary of Berkshire Hathaway. Today, GEICO continues to thrive and take market share under its low-cost model.

For full article click here…

Warren Buffett Cartoon coming to AOL

secret-millionaires-club-logo The interview below shows a clip of the Warren Buffett cartoon that will be coming to AOL soon. These new webisodes will aim to teach young people about finance, investing, science and the environment.



I think this is a great idea and I am sure you can agree with me if you take a look at the clip below. Warren Buffett also talks about the inflationary environment that can be expected as a result of the high spending of the administration today. As always, a wealth of information from this 18 minute clip.

Warren Buffett Financial Rules to Live By








1. If it seems to good to be true, it usually is.

2. Always look at how much the other guy is making in the deal.

3. Stay away from leverage (borrowed money).

Click here for video

Interview with Charlie Munger

Monday Interview: Man on the money with Buffett
By Justin Baer in New York , Financial Times,
12 Jul 2009

Get Article here: http://www.scribd.com/doc/17317034/Munger

Wesco Financial's Pasadena headquarters are a blur of earth tones and cloudless sky. Bathed in southern California sun, the offices hold a glow befitting the gilded career of the company's chairman, Charlie Munger. Mr Munger, best known as business partner to Warren Buffett, head of Berkshire Hathaway, is settled deep into his chair. His lips stretched to a thin smile, the 85-year-old billionaire peers through thick glasses.

Over the years, generations of investors, chief executives and journalists have
wondered why Mr Munger has stayed happily in the background for almost half a
century as Mr Buffett forged a reputation as the world's greatest stock-picker.
"Warren is peculiar, and I'm peculiar," says Mr Munger, who is also Berkshire's vice chairman.

"We've got our own peculiar operating model. Nobody else operates the
same way or stays in the game in a major corporation as long as we have, so we've got a different model. And we like it that way."

Working 1,500 miles apart – Mr Buffett remains in his hometown of Omaha,
Nebraska – the two "intellectual pals" have built up a stellar record by sticking to the basic principles of value investing: they buy companies in industries they
understand, with managers they trust, at cut-rate prices. "We think all intelligent
investing is value investing," he says. "What the hell could it be if it wasn't value?"
While Mr Buffett's mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
"That worked fine in the period after the 1930s," Mr Munger says. "I don't think it
works nearly as well now. Too many people are doing it."

Many of Berkshire's holdings, from longtime investments such as Coca-Cola and
Wells Fargo to last year's purchase of General Electric's preferred shares, are bluechip companies considered the best at what they do.
The strategy sounds simple enough, but Mr Munger says few investors practise it.
"You can't believe the way that conventional wisdom invests money," he explains.
"They tend to rush into whatever fad has worked lately. In my opinion, a lot of them
are going to get creamed."

There are no regular meetings at Berkshire, no corporate-speak or standard
management memorandums that help define the cultures of so many companies.
"The legally required meetings for corporate governance, we do those," Mr Munger
says. "Everything else is ad hoc."

Mr Munger has been known to seize hold of a conversation and not let go until his
views on a given subject – and possibly the interviewer – are exhausted. But on this afternoon, he is practically beaming.

"When Warren talks about tap dancing to work, he's not kidding," he says. "His
spirits lift as he goes through the office door. And I'm the same way."
In keeping a stake in the hands of public shareholders and a portfolio of its own
investments, Wesco maintains an unusual place within the Berkshire empire. Mr
Buffett initially agreed to keep the company as a standalone entity to honour the
request by the Casper family, the previous owners who had sided with Berkshire in
a takeover battle for the former savings and loan company.

"Wesco is a historical accident," Mr Munger says of the holding company whose
assets include an insurer, a steel manufacturer and a furniture-rental business. "It
should've been folded into Berkshire long ago."

It is unlikely Berkshire, which owns 80 per cent of Wesco, will acquire the remaining stake unless the stock price falls relative to Berkshire's. "Warren's never going to issue stock that isn't fair to Berkshire shareholders, so we're hooked by reason of our popularity," Mr Munger explains. "But it is a ridiculous outcome and it costs $2m (€1.4m, £1.2m) a year in extra administration costs. We hate it, but we can't fix it."

Like Berkshire, Wesco's annual meetings, held each spring in Pasadena, have
inspired a devoted following among its investors. But while the carnival atmosphere
of Berkshire's event in Omaha has earned it the moniker "a Woodstock for
capitalists", Wesco's gathering is an intimate performance in a small club. And Mr
Munger's terse soundbites, his trademark at the Omaha meetings, give way in
Pasadena to extended monologues on the economy, government policy and his
favourite target this year, the financial services industry.
"The public is furious with Wall Street," he says. "Everyone who is in a position to
observe this says they've never seen this much fury to one particular industry."

Is it justified?


A voracious reader, Mr Munger's conversations and writings are peppered with
references to philosophers, psychologists and inventors whose works and life stories he has studied. He speaks directly, in a tone that can, at times, both alienate and educate.

Like Mr Buffett, Mr Munger was raised in Omaha. He attended the University of
Michigan, enlisted in the Army Air Corps and, after the second world war, earned a
degree from his father's alma mater, Harvard Law School. He considered joining his
father's practice in Omaha before setting his sights on southern California, where he had studied meteorology during the war.

Mr Munger was back in Omaha in 1959 when a family friend arranged a lunch with
Mr Buffett, then a young local investment manager. The pair hit it off immediately
and thus began a lifelong friendship.

By the early 1960s, Mr Munger had opened a law practice with four others and found success as a part-time investor in both businesses and commercial real estate. As his relationship with Mr Buffett flourished, he eventually stopped practising law to focus on deals.

While they no longer speak daily, rarely will more than a week pass between
conversations. They still frequently send one another documents and books to read. And while they often disagree, Mr Buffett once told the Financial Times that they had "never had an argument".

"We are having a huge amount of fun understanding how the world works," Mr
Munger says.

Mr Munger has amassed a great fortune in part because of his association with Mr
Buffett, but as his annual meetings attest, he has also built a loyal following of his

"He's got a real fan club, but for good reason," Mr Buffett has said. "I'm a member,
too." Mr Munger is in turn quick to praise Mr Buffett, who is looking to rebound from Berkshire's worst year. As an investor, Mr Munger insists, his partner has continued to improve.

"He never would have bought into BYD [the Chinese electric car battery maker]," Mr Munger said. "He's changed. He learns."

Longtime Berkshire disciples and friends alike might say Mr Munger has had
something to do with that.

"There's no successor to Charlie," Mr Buffett says. "You're not going to find anyone
like him."

Microsoft’s Jeff Raikes Email to Warren Buffett in 1997

To: Warren Buffett, Berkshire
Subject: Go Huskers!
Date: Sunday, August 17, 1997 9:37 PM

Warren, I apologize in advance for this being a long note. I do hope you find it interesting, and be certain I don’t expect a long reply (or any reply at all for that matter). Perhaps sometime we’ll get a few minutes where I can get your reaction to the thoughts on the business below.

Click here to read the entire email

Warren Buffett: Stimulus is Not a Panacea

Warren Buffett talks about how the U.S. economy needs a second, less watered down stimulus.

Click Link below for video from CNBC.


Warren Buffett On CNBC

Warren Buffett talks about current state of the economy. No green shoots.

Warren Buffett on Becoming a Successful Investor

“I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing--some twice. You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water--take a small amount of money and do it yourself. Investing on paper is like reading a romance novel versus doing something else. [Laughter] You'll soon find out whether you like it. The earlier you start, the better.

At age 19, I read a book [The Intelligent Investor by Benjamin Graham], and what I'm doing today, at age 76, is running things through the same thought process I learned from the book I read at 19.

I remain big on reading everything in sight. And when you get the opportunity to meet someone like Lorimer Davidson (former CEO of Geico), as I did, jump at it. I probably learned more in those four hours than in almost any course in college or business school.”

Warren Buffett Advice to Girl Scouts at Dairy Queen

Great advice to Girl Scouts from Warren Buffett. Listen to this 5 minute video.


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