The Buffett

 
 


  • Warren Buffett Stock - Investment Details since 1967

    1. --------------------------------------------------------------------

      Period 4

    2. Berkshire's investments 1977-1982
    3. GEICO Buffett's first business love
    4. Dilemma of GEICO's goodwill
    5. Trivia about Buffett's involvement with GEICO
    6. Berkshire Hathaway's investments 1977-1982 (All numbers in 000s) except no of shares

      1977

      COMPANY
      No. OF SHARES     COST     MARKET    
      Capital Cities Communications, Inc
      220,000     $10,909     $13,228    
      GEICO Preferred
      1,986,953     $19,417     $33,033    
      GEICO Common
      1,294,308     $4,116     $10,516    
      The Interpublic Group of Companies, Inc.
      592,650     $4,531     $17,187    
      Kaiser Aluminum& Chemical Corporation
      324,580     $11,218     $9,981    
      Kaiser Industries, Inc
      1,305,800     $778     $6,039    
      Knight-Ridder Newspapers, Inc
      226,900     $7,534     $8,736    
      Ogilvy & Mather International, Inc
      170,800     $2,762     $6,960    
      The Washington Post Company Class B
      934,300     $10,628     $33,401    
      TOTAL
          $71,893     $139,081    
      All other holdings
          $34,996     $41,992    
      Total Equities
          $106,889     $181,073    

      1978

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Broadcasting Companies, Inc.
      246,450     $6,082     $8,626    
      GEICO Preferred
      1,986,953     $19,417     $28,314    
      GEICO Common
      1,294,308     $4,116     9,060    
      The Interpublic Group of Companies, Inc.
      592,650     $4,531     $19,039    
      Kaiser Aluminum& Chemical Corporation
      1,066,934     $18,085     $18,671    
      Knight-Ridder Newspapers, Inc
      453,800     $7,534     $10,267    
      SAFECO Corporation
      953,750     $23,867     $26,467    
      The Washington Post Company Class B
      934,300     $10,628     $43,445    
      TOTAL
          $94,260     $163,889    
      All other holdings
          $39,506     $57,040    
      Total Equities
          $133,766     $220,929    

      1979

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Broadcasting Companies, Inc.
      246,450     $6,082     $9,673    
      Affiliated Publications, Inc
      289,700     $2,821     $8,800    
      Amerada Hess
      112,545     $2,861     $5,487    
      GEICO Corp. (Common Stock)
      5,730,114     $28,288     $68,045    
      General Foods, Inc
      328,700     $11,437     $5,487    
      Handy & Harman
      1,007,500     $21,825     $38,537    
      Interpublic Group of Companies, Inc
      711,180     $4,531     $23,736    
      Kaiser Aluminum & Chemical Corp
      1,211,834     $20,629     $23,328    
      Media General, Inc
      282,500     $4,545     $7,345    
      Ogilvy & Mather International
      391,400     $3,709     $7,828    
      SAFECO Corporation
      953,750     $23,867     $35,527    
      The Washington Post Company
      1,868,000     $10,628     $39,241    
      F. W. Woolworth Company
      771,900     $15,515     $19,394    
      Total
          $156,738     $297,994    
      All Other Holdings
          $28,675     $38,686    
      Total Equities
          $185,413     $336,680    

      1980

      COMPANY
      No. OF SHARES     COST     MARKET    
      Affiliated Publications, Inc
      434,550 (a)     $2,821     $12,222    
      Aluminum Company of America
      464,317 (a)     $25,577     $27,685    
      Cleveland-Cliffs Iron Company
      475,217 (b)     $12,942     $15,894    
      General Foods, Inc
      1,983,812 (b)     $62,507     $59,889    
      GEICO Corporation
      7,200,000 (a)     $47,138     $105,300    
      Handy & Harman
      2,015,000 (a)     $21,825     $58,435    
      Interpublic Group of Companies, Inc
      711,180 (a)     $4,531     $22,135    
      Kaiser Aluminum & Chemical Corp
      1,211,834 (a)     $20,629     $27,569    
      Media General
      282,500 (a)     $4,545     $8,334    
      National Detroit Corporation
      247,039 (b)     $5,930     $6,299    
      National Student Marketing
      881,500 (a)     $5,128     $5,895    
      Ogilvy & Mather Int抣. Inc
      391,400 (a)     $3,709     $9,981    
      Pinkerton's, Inc
      370,088 (b)     $12,144     $16,489    
      R. J. Reynolds Industries
      245,700 (b)     $8,702     $11,228    
      SAFECO Corporation
      1,250,525 (b)     $32,062     $45,177    
      The Times Mirror Company
      151,104 (b)     $4,447     $6,271    
      The Washington Post Company
      1,868,600 (a)     $10,628     $42,277    
      E W Woolworth Company
      667,124 (b)     $13,583     $16,511    
      Total
          $298,848     $497,591    
      All Other Common Stockholdings
          $26,313     $32,096    
      Total Common Stocks
          $325,161     $529,687    

      1981

      COMPANY
      No. OF SHARES     COST     MARKET    
      Affiliated Publications, Inc
      451,650 (a)     $3,297     $14,114    
      Aluminum Company of America
      703,634 (a)     $19,359     $18,031    
      Arcata Corporation
      420,441 (a)     $14,076     $15,136    
      Cleveland-Cliffs Iron Company
      475,217 (b)     $12,942     $14,362    
      GATX Corporation
      441,522 (a)     $17,147     $13,466    
      General Foods, Inc
      2,101,244 (b)     $66,277     $66,714    
      GEICO Corporation
      7,200,000 (a)     $47,138     $199,800    
      Handy & Harman
      2,015,000 (a)     $21,825     $36,270    
      Interpublic Group of Companies, Inc.
      711,180 (a)     $4,531     $23,202    
      Media General
      282,500 (a)     $4,545     $11,088    
      Ogilvy & Mather International Inc
      391,400 (a)     $3,709     $12,329    
      Pinkerton's, Inc
      370,088 (b)     $12,144     $19,675    
      R. J. Reynolds Industries, Inc
      1,764,824 (b)     $76,668     $83,127    
      SAFECO Corporation
      785,225 (b)     $21,329     $31,016    
      The Washington Post Company
      1,868,600 (a)     $10,628     $58,160    
      Total
          $335,615     $616,490    
      All Other Common Stockholdings
          $16,131     $22,739    
      Total common stocks
          $351,746     $639,229    

      1982

      COMPANY
      No. OF SHARES     COST     MARKET    
      Affiliated Publications, Inc
      460,650 (a)     $3,516     $16,929    
      Crum & Forster
      908,800 (c)     $47,144     $48,962    
      General Foods, Inc
      2,101,244 (b)     $66,277     $83,680    
      GEICO Corporation
      7,200,000 (a)     $47,138     $309,600    
      Handy & Harman
      2,379,200 (a)     $27,318     $46,692    
      Interpublic Group of Companies, Inc
      711,180 (a)     $4,531     $34,314    
      Media General
      282,500 (a)     $4,545     $12,289    
      Ogilvy & Mather Int抣. Inc
      391,400 (a)     $3,709     $17,319    
      R. J. Reynolds Industries
      3,107,675 (b)     $142,343     $158,715    
      Time, Inc
      1,531,391 (a)     $45,273     $79,824    
      The Washington Post Company
      1,868,600 (a)     $10,628     $103,240    
      Total
          $402,422     $911,564    
      All Other Common Stockholdings
      1,868,600 (a)     $21,611     $34,058    
      Total Common stocks
          $402,422     $911,564    

      (a) All owned by Berkshire or its insurance subsidiaries.
      (b) Blue Chip and/or Wesco own shares of these companies. All numbers represent Berkshire's net interest in the larger gross holdings of the group.

       

      GEICO, Buffett's first business love. Berkshire's equity portfolio grew from $181million in 1977 to $945million. In this period GEICO had grown from $43million to $309million. Leo Goodwin had formed this great insurance company in 1936. It was led by business magnets like Ben Graham and Lorimer Davidson after that. In early seventies the company's management lost focus. The industry's regulatory bodies became more stringent on no-fault law. GEICO's underwriting standards became loose and it wrote a lot of risky policies with improper rates. All this started showing up in GEICO's results. In the year 1975 GEICO made a loss of $216 million. In just 1 year the stock was down from its peak of $42 to $4. (92% drop).

      In the coming year's AGM, GEICO's CEO Ralph Peck was ousted and was replaced by a former Traveler's insurance veteran John Byrne. John started working hard towards bringing back the strong Underwriting discipline. Around 100 offices were closed and the employee strength was reduced by half. Even though the company was going through tough times, but its core competence of having low operating costs was intact. It spent 15 cents on every dollar in terms of operating expenses compared to industry average of 24. But Wall Street was not keen enough on digging in detail and had trashed the stock to around $2.12. It was then that Berkshire started buying shares of GEICO. In short span of time Berkshire had put in $4million. Buffett's closeness to Solomon's management came in handy. Solomon brothers agreed to underwrite $76million of GEICO's new offering for its preferred stock of which Berkshire bought 25% of it for $9.20/share. Taking Berkshire's total investment in GEICO to $23million. By 1980 Berkshire's total investment in GEICO was $45million. It represented 33% of GEICO's outstanding shares. The company steadily grew next 15 years and by 1995 Berkshire's $45million investment was worth around $2,393million. As GEICO had bought back a lot of its own shares in those 15 years, Berkshire's stake had grown to 51%. Berkshire finally bought the rest 49% on Jan-2,1996 for $2.3bn.

      Dilemma of GEICO's goodwill. When, in 1996, Berkshire bought the 50% of GEICO they didn't already own, it cost them about $2.3 billion. That price implied a value of $4.6 billion for 100%. GEICO then had tangible net worth of $1.9 billion. The excess over tangible net worth of the implied value, $2.7 billion, was what they estimated GEICO's "Goodwill" to be worth at that time. That goodwill represented the economic value of the policyholders who were then doing business with GEICO. In 1995, those customers had paid the company $2.8 billion in premiums. Consequently, Berkshire valued GEICO's customers at about 97% (2.7/2.8) of what they were annually paying the company. By industry standards, that was a very high price. But GEICO was no ordinary insurer: Because of the company's low costs, its policyholders were consistently profitable and unusually loyal. 14 years down the line in 2010, premium volume was $14.3 billion. Yet as of 2010 Berkshire carried the goodwill of GEICO at its books at only $1.4 billion, an amount that will remain unchanged no matter how much the value of GEICO increases. (Under accounting rules, you write down the carrying value of goodwill if its economic value decreases, but leave it unchanged if economic value increases.) Using the 97%-of-premium-volume yardstick they applied to their 1996 purchase, the real value in 2010 of GEICO's economic goodwill is about $14 billion.

      Trivia about Buffet's involvement with GEICO. At Columbia University Buffett learnt that Graham was Chairman of GEICO and the company was based in Washington DC. On a January Saturday in 1951 he decided to visit its headquarters. And thus Buffett met Lorimer Davidson, Assistant to the President, who was later to become CEO. Though Buffett's only credentials were that he was a student of Graham's, "Davy" graciously spent four hours or so showering him with both kindness and instruction. As Davy made clear, GEICO's method of selling - direct marketing - gave it an enormous cost advantage over competitors that sold through agents, a form of distribution so ingrained in the business of these insurers that it was impossible for them to give it up. When Buffett finished his schooling at Columbia and started selling securities at Omaha, his first sale was GEICO to his Aunt Alice. Buffett also wrote a short report late in 1951 about GEICO for "The Security I Like Best" column in The Commercial and Financial Chronicle, a leading financial publication of the time. He also bought the stock for his own account. Buffett had bought 350 shares of GEICO in 1951 at a cost of $10,282. At yearend, this holding was worth $13,125, more than 65% of his net worth. Buffett sold his entire GEICO position in 1952 for $15,259, primarily to switch into Western Insurance Securities. He was attracted to Western because its P/E ratio was around one. In the next twenty years that $15,259 could have grown to around $1.3million had Buffett kept his GEICO holdings.

    © 1996- The Buffett