Legendary superinvestor Warren Buffett first got involved with the GEICO insurance company in 1951, purchasing shares of its stock. And since 1996, his holding company, Berkshire Hathaway (BRK.A 1.08%) (BRK.B 1.09%), has owned it outright. In this episode of "The Rank" on Motley Fool Live, recorded on Feb. 28, Fool.com contributors Jason Hall, John Bromels, and Travis Hoium discuss their favorite of Buffett's many acquisitions.
Travis Hoium: GEICO. So Warren Buffett started buying shares of GEICO when he was 21 years old in 1951, something like that.
Jason Hall: He was 100% GEICO at one point.
Hoium: With his own personal portfolio, yes.
Hall: But he was 21, so.
Hoium: Benjamin Graham, I believe, was the chairman of the board at that time. He wanted to learn about this business that his mentor was involved in. He showed up, I believe it was on a Saturday or Sunday to the office, and one of the executives was there who would then later become the CEO, gave him a four-hour crash course on the insurance business. Buffett became obsessed with it and went all-in on it personally, made a lot of money. The other thing I think is interesting to keep in mind is Buffett was I believe a millionaire in his mid-20s from trading stocks like GEICO. If I'm not mistaken, like an actual millionaire, not like a millionaire in today's dollars, he was very, very wealthy in his 20s. Ended up spending $46 million to buy a little over half of GEICO before eventually buying the rest of the company in 1996 for $2.3 billion, that was to do the buyout. Basically acquired that company for $4.6 billion, and it has just been a cash machine ever since. As Bromels leaves us with his GEICO image.
John Bromels: [impersonating gecko] Warren Buffett has been here in this company longer than I have.
Hall: John... [laughs, inaudible]
Bromels: That's what I'm saying. Actually, the big thing I love about GEICO, does anyone know what is GEICO an acronym for?
Hall: Government Employees Insurance Corporate.
Hoium: Government Employees Insurance Company. Yes, it was their corporation, it was originally just for government employees.
Hall: The float. That's, I just want to say that real quick. You think about it's not just operating or the underwriting profit that they generate from GEICO, which is not massive it's big, but in terms.
Hoium: $1.3 billion last year.
Hall: Right. It's a lot of money. But in Berkshire money, it's really not a lot of money and in the size of that insurance portfolio, it's not a lot of money. It's all of the $100 billion that they have that they get to invest basically free of charge. That perpetual capital is incredible.
