The Security I Like Best (1951)
Young Warren Buffett analysis of GEICO, written when he was 20 years old
The Security I Like Best (1951)
Author: Warren E. Buffett Published: December 6, 1951 Source: Graham and Dodd'sville
Overview
A young Warren Buffett (age 20) wrote this detailed analysis of GEICO for the Commercial & Financial Chronicle. This article reveals the seeds of Buffett's future investment philosophy and his admiration for Ben Graham's investment approach.
Key Points
Why Auto Insurance?
Buffett saw auto insurance as uniquely advantaged:
- No inventory problems
- No collection issues
- No labor problems
- No raw material concerns
- No obsolescence risk
GEICO's Competitive Advantages
- Direct Marketing — No agents or branch offices
- Price Leadership — Premiums 30% below competitors
- Fast Claims Processing — 500 representatives nationwide
- Selective Risk-Taking — Won't renew poor risks
Financial Performance
| Year | Premiums Written | Policyholders |
|---|---|---|
| 1936 | $103,696 | 3,754 |
| 1940 | $768,057 | 25,514 |
| 1945 | $1,638,562 | 51,697 |
| 1950 | $8,016,975 | 143,944 |
Profit Margin Comparison
| Company | Profit Margin |
|---|---|
| GEICO | 27.5% |
| Industry Average | 6.7% |
Even in bad years (1950), GEICO maintained 18% margins vs. industry 3%.
Valuation
At the time of writing:
"At the present price of about eight times the earnings of 1950, a poor year for the industry, it appears that no price is being paid for the tremendous growth potential of the company."
Significance
This article shows Buffett's analytical approach at a young age:
- Deep industry analysis
- Focus on competitive advantages
- Understanding of unit economics
- Patience for growth
Related Concepts
Source
Warren Buffett, December 6, 1951.