Warren Buffet: The Future Is Bright for This Incredible Business

Buffett predicts further market share gains for Berkshire's auto-insurer while Munger compares the company to Costco

Jun 29, 2014 at 10:25AM

Images

Every year, thousands of investors flock to Omaha to hear the wisdom of Warren Buffett and Charlie Munger. 

For as long as six hours, with only one break for lunch, the two business legends take questions from investors, the press, and analysts. Appropriately for a shareholder meeting, the focus is the business of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B)  but it's not the only topic they discuss. This year, Buffett and Munger discussed Geico's future in response to a question from financial analyst Jay Gelb. 

I attended the meeting back in May and the following are my notes on Gelb's question, along with responses from Buffett and Munger.

Jay Gelb: Geico continues to gain share while having attractive margins, spending more on advertising, and having lowest cost structure. Will Geico overtake State Farm in market share?

Warren: No one knows for sure. We passed Allstate(NYSE: ALL) this year. It has one of the great company histories in America. Started by a farmer with no insurance experience. He built this incredible business based on a better business model, this was 1920, and then Geico came up with an even better model. State Farm was huge by that time, Allstate was very large. It's taken us since 1936 to become No. 2. If I live to 100, we should be No. 1... I'm going to do my part! (laughs).

We will gain share, in my view. Month after month, year after year, as long as we never forget our job is to take care of the customer, and keep rating risk well. Tony Nicely has done a job that belongs in the hall of fame in terms of achieving that objective. In the 15 years prior to Tony taking over, market share had hovered around 2%. Since then, it's gone to 10%-plus and it'll keep going. State Farm has a net worth of probably $60 billion to $70 billion, and a strong presence in homeowners, a strong agency force, and a lot of satisfied customers. It won't come fast, but I do think it'll come.

Charlie: Geico to me is very much like Costco(NASDAQ:COST), one of the reasons that they succeed is because they're really committed to offering a really great product. A lot of people talk that game, but few live it. Geico does and that will help it over time.

Warren: One thing you'll find. People [employees] don't come and go from there. We have no one who leaves us. They have their own idea about what should be done, and how it should be done right.

Charlie: Costco is unbelievable and it reminds me of [inaudible]. Talking the game is one thing, but living the game is something else. It's against human nature to offer prices like that. It's like wearing the ultimate hair shirt, yet it works.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Brendan Mathews owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and Costco Wholesale. The Motley Fool owns shares of Berkshire Hathaway and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers