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Berkshire Beyond BuffettThe Enduring Value of Values$
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Lawrence Cunningham

Print publication date: 2014

Print ISBN-13: 9780231170048

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231170048.001.0001

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Budget-conscious and Earnest

Budget-conscious and Earnest

(p.45) 4 Budget-conscious and Earnest
Berkshire Beyond Buffett

Lawrence A. Cunningham

Columbia University Press

This chapter explores the first of the Berkshire values—budget consciousness—through the story of car insurance company GEICO. GEICO, established by former United Services Automobile Association (USAA) insurance manager Leo Goodwin in the 1930s, marketed car insurance directly to customers perceived as the least risky drivers, namely U.S. military officers as well as other federal government employees. Goodwin’s business model was simple: low-cost insurance, sold without agents, to targeted risk pools that were given quality customer service. Buffet became interested in GEICO after learning that his professor at Columbia Business School, Benjamin Graham, was chairman of the company. Never having heard of the company in an industry he knew nothing about, Buffet decided to visit GEICO’s Washington headquarters, where he spent several hours learning about the business from GEICO senior officer Lorimer Davidson. Buffett’s key takeaway: “GEICO’s method of selling—direct marketing— gave it a wide cost advantage over competitors that sold through agents, a form of distribution so ingrained in the business of these insurers that it was impossible for them to give it up.” Inspired by his chat with Davidson, Buffett studied GEICO and the insurance industry carefully. He also bought 350 shares of GEICO stock during 1951 at a cost of $10,282, representing half his net worth.

Keywords:   GEICO, car insurance, insurance company, budget consciousness, Berkshire Hathaway, Warren Buffett, business models, Leo Goodwin, direct marketing

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