Abstract: the original Graham bought GEICO for exactly the reasons we do value investing stock ideas are consistent. The initial GEICO is small, but the earnings per share growth, large increase, the company's managers be conscientious and do one's best, but as long as the little salary, accord with the characteristics of excellent manager. The cost of doing the work, 30-40% less than competitors, customers choose government employees, reduce the loss amount. But after Graham took over the company, is also a full practice. He advocated in financial investment.

"Technology is very useful, but luck is the key." Author Howard Mitch Newman 1993 -- accept interview said.
Graham's cautious almost let him miss his most brilliant investment performance -- bought 60 's growth miracle Government Employees Insurance Company (GEICO) a majority stake.
 
The story begins in the year 1948 . The scale is small, for direct mail order business private insurance company owner to liquidity, then sent two representatives to the Wall Street to find buyers. The two unfortunate people, E · R · Jones and Washington lawyer David Lloyd Craig, prove futile in the Wall Street trek,, finally found the Graham Graham Newman Company, hope to make this believe GE-ICO is consistent with the definition of his special circumstances. The delegation is Ben and Jerry's friend and the legal adviser Fred Greenman introduced to the. Greenman assured friends GEICO price below book value 10%,
Is a good business.
 
Attractive figure
 
The size of the GEICO not much bigger than a couple, but its numbers are very convincing: annual insurance income in 2000000 to 3000000 between, 1946 year earnings per share is $1.29, 1947 is 5.89 dollars.
 
"And the business need not say more," Lorimer · A · Davidson said, he also participated in the negotiations. Davidson was the GEICO marketing staff, and later became its top executives. "He saw David Keruige and I can see things -- the company enormous potential and the bright future." Craig and his investing, 1970 years, Craig also follow in his footsteps and became a senior supervisor.
 
A good idea
 
GEICO1936 was founded in Texas in Ford Voss, founder is 50 year old accountant Leo Goodwin and his wife Lilian Goodwin and their contribution. They believe that by reducing the cost of sales, reduce the risk of most of the subscription can be even cheaper car insurance. At first, Leo and Lilian a year 365 day 12 hours, but he only $250 a month's wages. At night, they make the insured list at the dinner table; weekend, Leo drove to the military base to young government staff to send price policy, so as to avoid the agents and agent cost.
 
Cost insurance GEICO 30 - 40% less than competitors. Goodwin usually put the policy mailed to government staff in order to reduce the risk, because the number of times they claim than social average. Because many Washington state employees than any place, company in the years 1937 moved here. Goodwin couples in the hard work, the company has been developing rapidly in the early stage.
 
Forced to sell
 
However, Goodwin is only 25% of the shares. The largest shareholder is Ford Vos banker Cleaves Leah, he has a 55% stake, one of Leah's deceased relatives A D Leah has a 20% stake in the other. Sell the stock to is Leah family.
 
This is convinced of the value of GEICO, began talks to buy control. But Walter Schulers said, 54 years old at the time, in this line for 30 years experience this is also true for yourself an out.
 
"Walter", the Graham Graham Newman Company agreed to buy the vigor of the insurance company that day said to him: "what if the acquisition of the effect is not good, we can recover the investment liquidation it at any time."
 
The hesitation may is due more to the trade scale. After all, GE-ICO acquisitions more money than any acquisition.
 
Complex problem
 
Moreover, the of the industry is also a concern. Earlier this year, the New York Institute of finance, said to the students, the insurance industry to benefit everyone -- managers, investors, distributors, consumers -- in addition to shareholders. There are two his advice to the insurance company: it cannot achieve enough returns, premium of the insured will eventually for compensation There is not much left.; moreover, it paid out in dividends are not many, this not only reduces the total revenue, and add pressure to the shareholders.
 
In fact, the students admitted with an insurance company Graham Graham Newman Company investment dispute. "Newamsterdam disaster insurance company assets value has reached about $50 a share, but it from 1934 years to pay a $1 dividend, although its earnings per share for $4 or more. The results, the market that $1 dividend only values of up to $36.5, so at the end of 1946 's share price is less than $26. This is the case in the past, as far as we know, this situation will persist."
 
The doubts aside
 
This managed to overcome their fear of the insurance industry. As the largest shareholder in GEICO, and a member of the board of directors, he can avoid their own view on the practice of shareholders.
 
GEICO half of the shares of 1500 shares per share -- -- $475 or $712500 to buy, this is Graham - Graham Newman Company 25% of assets. At the last moment, because this and Jerry asked to purchase price is completely consistent with the value of the assets, trading almost abortion: financial report showed that the value of assets less 5 million dollars. After some hesitation, this transaction is successful. For a stick to diversify, hands often have hundreds of different stock investment manager, GEICO trading is a bold change. Although he is the instinct to complete this change, but later proved that instinct is reliable, the words of Schuler, which he said was of no significance.
 
Error in rule
 
The evaluation of insurance company is correct, but he did make a big mistake -- GEICO is not a good way of liquidation. Ben and Jerry soon found, their errors are not so large to buy any insurance company.
They later learned, 1940 year "investment company law" provisions, investment company owned insurance company shares more than 10% is illegal. The securities and Exchange Commission (SEC) requirements Graham Graham Newman Company canceled this transaction, the company returned to its creator. However, when we find the Leah family, but they refused to take back the stock.
 
Forced to publicly issued
 
As an alternative, the SEC agreed they had stripped to their shareholders stock. Two partners to achieve the allocation process with the most simple method. In 1948 July 2 report describes the confusion and their approach to the shareholders. "We are advised by the OTC market allocation of insurance company stock. Once the deal, Graham - Graham Newman Company's board of directors will be the allocation of shares to determine a fair market value -- this is for tax considerations. We know that, if this financial year Graham - Graham Newman Company all their own implementation of income distribution in the form of cash dividend, then the current distribution is not required to pay taxes the shareholders."
 
As a business partner, Graham and Newman was allowed to retain his shares, participate in the management of GEICO . Good luck to them in this matter, the biggest mistake that automatically disappear. That soon proved: the public sale of GEICO shares to investors is the most favorable.
 
The market reaction to the wonderful
 
Indeed, in 1948 July when GEICO shares, the market value is $27, for every 1.08 shares at the end of the year, the price has reached 30 dollars per share, but this is just the beginning.
 
"Then we -- entire firm -- the market value of more than $1000000000." The said. "This is the beat all."
 
Mitch Newman agreed with this view. "This is Graham - Graham Newman Company history the most lucky thing. An over-the-counter market is formed, and Graham - the Graham Newman Company shareholders, basically have this special valuable stock. This was a complete surprise. If the SEC no such regulations, the market will never form."
 
Haven
 
We admit that there are certain contingencies in the acquisition of GEICO , but he also insisted that there were other factors at play. "The luck, back or a key decision, there must be prepared carefully and be trained with regularity of strength as a guarantee. A person must have the strength and prestige, opportunity will knock on his door. A person must have the means, judgment and determination to take advantage of these opportunities."
 
Walter Schulers points out, the success of the public sale of shares is only a start of surprise and harvest. In 1949, GEICO's profits exceeded 1000000 mark.
 
"Graham Graham Newman Company bought it, GEICO is about to take off, they just don't know it. No one thinks it grows will speed up, its position in the hearts of the people is just a small company can make money. Of course, after the acquisition of GEICO suddenly fly -- their timing is so good."
 
A good board
 
The power take-off largely from the re composition of the board of directors. Ben and Jerry as director, they and two other directors William K Jacobs and Robert Maloney together to actively manage the company. This Maroni is present in the 1919 years to write the article is not conducive to Milwaukee and St. Paul railroad report friends. The board of directors of the long-term relationship between members of the and Jerry almost put GEICO as its own business -- Graham - Graham Newman Company is very strong offspring.
 
Vigorous growth
 
Growth has been mysterious password GEICO. 1958 years, the management of the customer to expand the scope of non governmental staff experts, managers, technical staff and management personnel, the decision market capacity increased from 15% to 50% of all car owners, while the risk level is still low. In addition, the company also increased the government employee life insurance and other related business, Ben and Jerry are keen to start these. The expansion of GEICO attract sb.'s attention, soon became the nation's fifth largest Motors Insurance Corporation. In the performance of the company to reach the peak of 1972 years, Graham - to increase the original stock held by the Graham Newman Company for $16349, the estimated total investment income is about $300000000.
 
Stick to your idea
 
As a member of the board of directors, this can now confirm that GEICO he has consistently adhered to the policy, including "cash for a transparent and dividend distribution policy". The "smart investors" wrote: "under such policies, pay regular dividends will make all or part of the fixed income capitalization, back into the business. Praxair, GEICO may have several executive is the policy -- all income reinvested."
 
Generous rewards
 
Although this acquisition is full of unexpected factors, some characteristics and trading has also violated the principles of Graham himself, once a decision is to buy GEICO shares but half the harvest of the life. "An obvious truth is, a lot of Wall Street earn and save." The said.
 
Graham and his colleagues on the board of 17 years, GEICO has been very prosperous. In 1965, 71 year old this out of the GEICO board, GEICO gave this a sculptor August Rodan in 1888 created the statue "Mercury" as a retirement present. David Lloyd Craig is now chairman of GEICO , has a reputation in the art collection. He explained, mercury was the messenger of the gods in Greek mythology, represents the "Greek in the golden era of the most versatile person".
 
The myth of GEICO
 
This has a cult following, but GEICO's own image in the business community and God as the great. "GEICO is almost a religion, its customers for its insurance and service prostrate oneself in worship; its shareholders more devout, called it 'Cinderella' stock." Reporter Carol · J · Loomis wrote.
 
In 1971, Jerry Newman decided to retire as the same, the most glorious period in history is over GEICO . Newman was named for Warren Buffett to take his position on the board, this also gave President David Craig wrote to support this approach.
 
Buffett in the doghouse
 
This writes: "I totally agree with this point of view. Buffett and I are close contact for many years, I must say, I never met anyone like him outstanding character, operation ability outstanding person. As an investment fund manager, his achievements is probably unmatched.
 
In addition, I think Warren is a rich sense of humor, very easy to get along with people, he can make your director active atmosphere of the meeting. His valuable thoughts will be of great advantage to GEICO."
 
The board is interested in the appointment of Buffett, but because he was already in other insurance companies have a substantial investment, conflict of interest got him in trouble. The SEC have scruples, therefore it ran aground. Just imagine, if Buffett in the early to the board of directors, the history of GEICO will be what kind of? Perhaps managers and staff of investors, it would not have endured great suffering.

Abstract: GEICO later experienced an inflation of suffering, the management of errors to the value investment master Buffett another chance, because he believes that: Although the company financial hit, but the economy is still. In his own breathing, GEICO again!

Wall Street people understand: Graham and Newman from the board after the GEICO story is about the second chapter. When a company like GEICO that attract sb.'s attention, respected, any trouble. It will cause great influence in the public mind.

In times of crisis
 
The company continued to maintain the development after retirement, but the industry as a whole situation is changing. When the insurance salesman a whoop and a holler no risk insurance plan, inflation has forced the Motors Insurance Corporation to the edge of the cliff. The management of the cable is serious error in calculating odds and price, GEICO tasted the taste of no profit in 1975, this is the company's 36 year history of the first. Losses like snowball, in 1976, GEICO has been facing bankruptcy.
Further research on GEICO's balance sheet will be found, its stock price was too horrible to look at. In 1973, the transaction price is about $60, to 5 months of 1976 was down to $5.
 
Most of the people around Buffett and Graham in the early out of the stock, or some Graham Graham Newman Company investors battered. Walter Schuessler at the birth of son sold shares of GEICO paid the fees and other expenses, and later in the daughter sold the government employee life-insurance company was born when the stock.
 
"I really gave birth to two children, I think this is a good deal." Schulers said.
 
His son Edwin is now Buffett's investment company.
 
GEICO founder Leo Goodwin put his shares to his little Leo, who are in this case particularly badly hit. He as collateral for loans to these shares, set up other business. Stock prices fall, banks sell the collateral to cover losses. Finally, little Leo Dutch act.
 
Shocked
 
One of the professor Dodd is one of the victims, at least this is the short term nominal. Dodd told Schulers said he broke his own rule -- don't let the tax debt affects their decisions for sale. He talked to friends Owen Kahn to discuss whether should compensation in GEICO stock losses, their tax is very lucky, who advised him to keep the stock. Interestingly, when the company is already difficult to continue, its share price is still much higher than the first. For example, 1976 and initially equal value per share is $3407, almost 90 times the first publicly traded.
 
Although this is the company in the difficult period of development any pleasure to worry, huge losses on the 70 in the mid-1990s shocked, he still said to a reporter that the company can revive. Perhaps he had not foreseen, to complete this mission is one of his star pupils.
 
To find the opportunity
 
The first GEICO Warren Buffett when he was a student in the Columbia University. "In 1951, I 65% of all assets in GEICO." He said, is worth about $1 million. He has been the primary broker in Omaha to sell the stock, a few years later, when its profit reached 50% all out shares. "25 years later, the opportunity came. It was in trouble, which is when the dying."
 
1976 -- this world to that year -- Buffett by an average of $3.18 per share price of GEICO130 million shares of stock. During 1976 Dodd's letter to Buffett in praise of the big student. "Elsie and I to your action feel happy, we hope you can join GEICO's career."
 
The next five years, Buffett injected $45700000 of capital into GEICO. In 1980, Berkshire - Hathaway control of GEICO common stock 1/3, Buffett also at an average price of $1.31 per share for 7200000 shares. 1990 , Berkshire - Hathaway company in the annual report, has been with GEICO48% shares, worth about $1500000000.
 
Revive
 
GEICO management of the huge disaster cognition process is very slow, but back quickly. New managers to reverse the loss making situation in Solomon brothers help, operating profits began to rise in the years 1977 .
 
Buffett said in an annual report said: "GEICO was trouble making it and USA transit company located in 1964 salad oil scandal in the same situation. They belong to the same company, temporarily affected the financial hit, but the best economic strength still exists. This situation -- the outstanding performance has suffered from benign cancers (of course, need to have a good doctor) -- is different from the true 'turning' situation. When 'turning' situation occurs, the managers hope -- should also -- the company from Pygmalion Mellon (King of Cyprus, love you girl like -- translator's note) interference."
 
In 1981, Leo and Lilian couple had sown seeds have grown to $200000 $400000000 2 ten million, in 1992 the assets of GEICO reached 48 billion dollars, in which shareholders $1290000000. From 1989 to 1992, the rate of return is 25%, the stock price rose 40%, 1992, GE-ICO to 1:5 ratio was split. Create enormous wealth with the book of insurance money (or goods) ability is always one of the charm of GEICO . The wealth can be reinvested in order to obtain greater profits or make up for loss (insurance losses inherent). Unlike most competitors, GEICO subscription loss occurs very rarely. Buffett put his own one's ability and cleverness use a company heavy management, create amazing profits.
 
In 90, GEICO still charm. "Warren investment is very big," Mitch Newman said. Now Buffett is not on GEICO 's board, though his investment many. Several of his friends including Bill Rahn continues his work.
 
The family heritage
 
Before the trouble in GEICO basically sell stock on hand, retaining a bit. His original stock market declines with rising again. 1993 years, the grandson of the sale of part of the tuition fees to pay for medical school.
The "smart investors" has a section on the GEICO and the stock market's comments, it is true. "?? Financial circle has many interesting possibilities, smart, aggressive investors will find fun, in this bustling scene profit. Stimulation can hardly be avoided."