Some of you may know the story of GEICO. It was started in 1936 by the Goodwin family. They put up 25% of the initial capital, with the other 75% coming from a single outside source.
Ben Graham entered the picture in 1948. He was offered a deal to buy 50% of the company. He wasn’t the first or even the second person offered the deal, but he was the first to not turn it down. And he broke all of his own rules by accepting.
GEICO was nothing like the deep value cigar butt that usually caught Graham’s eye. It was a growing insurance company and, as Graham relayed in a postscript to The Intelligent Investor, “the price was moderate in relation to current earnings and asset value.”
It was overpriced not long after the deal, but Graham, a bit out of the ordinary, held on.
I can’t say the same for everyone else. Which is where things get interesting. I’ll let Walter Schloss pick up the story from here: Continue Reading…
