Buffett's Early Investment Case Study (2) Gak Insurance

Gack Insurance is one of Buffett's earliest examples of the teacher's use of Benjamin Graham's investment theory. Buffett, who was 20 years old at the time, studied very hard in school, and read the teacher's "Securities Analysis" and "Smart Investor" very well. In class, he often interacts with the teacher to ask questions, and Graham loves this smart and studious student. And when he graduated, he gave the only A+ in his teaching career.

While in school, Buffett discovered that teacher Graham was chairman of the board of directors of a small insurance company called The Government Employees Insurance Company, or Gak Insurance for short. Founded in 1936, The company sells auto insurance only for those working within the government system. To put it simply, it is only sold to civil servants. Then the sales method is also very unique, not to recruit offline insurance agents to sell insurance, but to sell car insurance to civil servants by mail and give them a very favorable price to attract them. This is the same as our current WeChat and Alipay sell insurance, online sales, marketing costs are very low. Moreover, the insurance sold is given to high-quality civil servants with a very low insurance rate. In this way, the company has built a low-cost, high-profit competition moat. With this marketing model, Gak Insurance is making a lot of money. But then in 1947, the Geck&C holding family wanted to sell its 55 percent stake. Then a broker named Lorimer Davidson was hired to take care of the sale of the stake. Graham was finally found, who then bought it for $720,000 and became chairman of the board.

Buffett was very interested in the company and then took a train to Gaeck Insurance in Washington on a Saturday morning. Through the doorman, Lorimer Davidson, who was working overtime on the weekend, was contacted. Buffett said that he was a student of Graham, the chairman of the board, and came to the company to study and investigate (otherwise, It is estimated that Davidson will not take care of this little doll that looks like a 16). The stock god came with a problem, a chat was 4 hours, and then the company touched the door. Summarize the two major advantages of the company. 1- Mail sales policies have great low cost advantages. 2- The insurance rate of the sales group is very low. Then he also discovered the most important factor on his path to canonization - floating gold. Float is the premium that the customer has paid that has not yet been settled. As long as the operating insurance company loses a small loss or maintains breakeven, he can use these float funds to invest in 0 interest or even free of charge to get rich.

Before coming to Geck Insurance, he also spoke with several insurance experts. These experts believe that Geck's stock price is now too high, and the sales force is weak and the market share is not high. But Buffett learned a truth from his teachers: You are neither right because the masses approve of you, nor are you wrong because the masses oppose you. Everything is based on facts, not the opinion of the public.

After returning from Gak Insurance, Buffett took out 65% of his total assets of $15,181, bought Gac & Ker Insurance for $10,282, and sold it the following year for a profit of about 50%. The investment was later re-calculated, assuming that the $10,282 Gak Insurance stock had not been sold and had been held until now it was worth about $1.3 million.

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Investment objects

Gac Insurance

Buy time

1951.20 years old

Buy price

10282

quantity

350

Sell price

15259

profit

4977