Buffett's Geico letter 1976

[Libs]

I enjoyed this:

 

 

http://blogs.wsj.com/moneybeat/2014/08/25/buffetts-private-analysis-of-geico-in-1976-extraordinary-but-mismanaged/?mod=yahoo_hs

[racemize]

I wish I could get a PDF of it, but I'm not seeing a good way. 

[Munger_Disciple]

Here is the pdf.

geicoletter.pdf

[indythinker85]

I wish I could get a PDF of it, but I'm not seeing a good way.

http://cdn1.valuewalk.com/wp-content/uploads/2014/08/geicoletter.pdf

Here http://www.scribd.com/doc/237676916/buffett-1976-letter-explaining-geico-purchase

 

http://www.valuewalk.com/2014/08/buffett-geico/

[racemize]

thanks everyone!

[gary17]

Thanks -

 

SO can Buffett's words about GEICO apply to BAC?

 

".... an extraordinary business advantage in a very large industry that was going to continue to grow."

 

"I have been attracted to the low cost operator in any business and, when you can find a combination of (i) an extremely large business, (ii) a more or less homogenous product, and (iii) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation."

 

 

 

[racemize]

I would not characterize BAC as "low cost", other than cost of deposits.

[augustabound]

I read somewhere he had around 50% of his net worth in Geico in 1951 (he borrowed $5000 from what I've read), he admits it was 66% in the letter.

[frugalchief]

Thanks for sharing.  ;)

[merkhet]

I read somewhere he had around 50% of his net worth in Geico in 1951 (he borrowed $5000 from what I've read), he admits it was 66% in the letter.

 

Those could both be right -- he could have initially allocated 50% of his net worth into GEICO in 1951, but the company could have appreciated in value by a little over 30% by the end of the year so that it is 66% in the letter.

[maxprogram]

Full corrected text of the letter:

 

http://www.futureblind.com/2014/08/1976-buffett-letter-about-geico/

[ScottHall]

Thanks -

 

SO can Buffett's words about GEICO apply to BAC?

 

".... an extraordinary business advantage in a very large industry that was going to continue to grow."

 

"I have been attracted to the low cost operator in any business and, when you can find a combination of (i) an extremely large business, (ii) a more or less homogenous product, and (iii) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation."

 

I'd say no to that. Part of the reason Buffett liked GEICO so much is that it provided more value to its customers through its cost advantage. Bank of America does have an extremely low cost of deposits, but I'd say that probably accrues more to its benefit than its depositors.

 

I think some of the online banks are more like GEICO, in that they offer higher rates on deposits but have much, much lower overhead because they don't have the legacy branch structure. BofI's efficiency ratio last year clocked in at about 37.6, for example, compared to Wells Fargo's 58.3.

 

No comment on the attractiveness of any of these companies at today's prices, though I do own Wells warrants.

[thepupil]

Thanks -

 

SO can Buffett's words about GEICO apply to BAC?

 

".... an extraordinary business advantage in a very large industry that was going to continue to grow."

 

"I have been attracted to the low cost operator in any business and, when you can find a combination of (i) an extremely large business, (ii) a more or less homogenous product, and (iii) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation."

 

IBKR?