tailieunhanh - PICK STOCKS LIKE WARREN BUFFETT PART 4

Here are examples of stocks or entire companies that Buffett has purchased, all of which have turned out to be big winners. Government Employees Insurance Company In 1976 Buffett accumulated almost million shares of GEICO, an auto insurance company, at an average of $ per share. | CCC-Boroson 2 45-90 8 28 01 1 27 PM Page 83 CHAPTER 13 Buy Wonderful Companies Here are examples of stocks or entire companies that Buffett has purchased all of which have turned out to be big winners. Government Employees Insurance Company In 1976 Buffett accumulated almost million shares of GEICO an auto insurance company at an average of per share. GEICO was in big trouble at the time. It was actually close to bankruptcy. In 1976 the company reported a loss of per share. The year before it had lost per share. Apparently the root cause of the trouble was that GEICO was insuring too many problem drivers whose claims were keeping the company from being profitable. A sign that a company is overextended Its sales are more than three times its equity the value of the stocks all shareholders own. GEICO s insurance sales were 34 per share in 1975 almost 16 times shareholders equity. Meanwhile its income from investments was a meager per share. If the company could at least break even on its insurance underwriting and stop losing money a purchase price of per share would be only a little more than three times the earnings of a share. A terrific bargain. 83 CCC-Boroson 2 45-90 8 28 01 1 27 PM Page 84 84 BUY WONDERFUL COMPANIES Besides there were reasons to be optimistic. The company had hired John Byrne a former manager of Travelers Insurance Company as its new president. Beyond that GEICO had an edge It sold auto insurance very cheaply. Unlike almost all other auto insurance companies GEICO sold directly to the public bypassing insurance agents and their sales commissions. That gave GEICO a clear advantage over other insurance companies which would antagonize their current agents if they decided to skip over them and sell directly and more cheaply. Could another insurance company come along and compete with GEICO Unlikely. Yes there was a moat as Buffett would call it. Even if a new company entered the business with low prices GEICO .