Berkshire has beaten the market by investing in companies with strong leadership. Over the last 40 years, the company has returned 20 percent annually, double the S&P 500’s return over the same time span, according to FactSet.
Buffett put this management strategy into play at insurer Geico, where strong management convinced him in part to pay a “steep price” when he purchased it outright in 1995.
Buffett first bought stock in the insurance company when he was 20 years old, eventually owning 41 percent of the company. In his 1986 letter to shareholders, Buffett credited Geico Chairman Bill Snyder with keeping operating costs low, which he called the “most important ingredient” to the company’s success.
“In sum, Geico is an exceptional business run by exceptional managers,” he wrote. “We are fortunate to be associated with them.”
Buffett agreed to purchase the rest of Geico for $2.3 billion in 1995. Gaining control of the growing company and its strong management was worth the high cost, he wrote in his letter that year. Buffett highlighted Tony Nicely, who rose from his position at the company as a clerk to become the chairman of the company.
In 1995, Buffett praised Nicely, who is still the chairman, for his intelligence, energy and focus, saying “If we’re lucky, he’ll stay another 34 years.”
For more classic Warren Buffett advice such as this, see
CNBC’s Buffett archive
.
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