Wolf Money(book recommendation and extra!!)

 

Just two weeks ago, I had reviewed “The deals of Warren Buffett Vol. 1” by Glen Arnold. Here I am back again for Vol. 2 The making of a Billionaire. The second instalment mention Mr. Buffett blockbuster deals. One particular deal which stood the test of time was Buffett purchased of GEICO. GEICO is currently the second largest auto insurer in US. GEICO was far cry from the strong company we known of today. There was a period in the company history where it was facing bankruptcy. During the early 70s, GEICO was underwriting auto insurance which subjected the company to huge exposure of drivers with poor driving record due to company executives opting for growth at all cost. The critical trend that cause profit to drop substantially was the changing of company policy to remove occupational restriction which resulted in customers with poorer accident statistics been roped in as customers. As underwriting standard fall, claims went up substantially which cause the company to suffer a 126m loss. The fate of GEICO was hanging in the balance. Stock price was down 97% before Buffett purchased his 51 percent stake at an average price of $3.13. It take a special person like Buffett to buy a company which was months away from bankruptcy. Warren Buffett believe much of GEICO’s moots were intact despite the dire situation facing the company.The company manage to survive and strive due to Jack Byrne leadership and other subsequent world class managers like Tony Nicely and Lou Simpson. GEICO was eventually taken private by Berkshire in 1997 for 2.3b which till today still produces a strong and steadfast return for Berkshire Hathaway. Buffett label GEICO as one of his best investment. GEICO has been one of the faithful stalwart in Berkshire Hathaway’s portfolio ever since. 

The Salomon investment had all the making of a Hollywood movie. Berkshire invested in Salomon Brothers due to his friendship with John Gutfreund(pron.Good Friend). Both gentlemen were involved in GEICO deal where Salomon was the only Wallstreet firm willing to underwrite a 76m convertible preferred issued by then bankruptcy threaten GEICO. That create a lot of goodwill for John which was put in good use a few years later when he invited Buffett to invest 700m which was 1/4 of Berkshire’s capital into Salomon Brothers, fearing a hostile takeover from corporate raider when Anglo American and De Beers wanted to do a combine sale of their stakes in Salomon. Unfortunately and fortunately the deal was one of Buffett toughest not because he didn’t make a handsome return but a series of mismanagement, market rigging and integrity issue put Salomon’s reputation in jeopardy. In the end, Buffett had to put up his own reputation to save the firm from bankruptcy as the Fed and Treasury department had threaten their existence. He was voted in as Salomon’s Chairperson for 10 months to clean up the mess. Buffett had to endure a Congress grilling. His testimony to Congress had becoming legendary and it’s continue to be the guiding principle of all Berkshire businesses as he was quoted during the hearing “ Losing money for the firm he can be forgiving but losing the firm’s reputation, he will be ruthless”. One could be very certain Buffett wasn’t tap dancing to work during those days as Chairperson of Salomon Brothers. In the end, Buffett did more than double his investment in Salomon 10 years later on a takeover offer by Travelers Group. He jokingly mention in an interview years later if he had known what was coming up in Salomon, he would avoided investing in the company altogether.

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The book is such a delightful read. Many of Buffett’s deals had become case study in business school around the world. The author did a good job in summarising the major deals into pocket size read. “The Deals of Warren Buffett Vol. 2” by Glen Arnold goes onto Lone Wolf recommendation list. 

Extra extra!!

There was a recent interview done on Warren Buffett by Charlie Rose. It was addictively entertaining and informative. I always enjoy his candid way of looking at life and investment. I posted the link below for anyone wanted to know more about the Oracle of Omaha. Enjoy!

https://charlierose.com/videos/31221

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Disclaimers 

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