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He wanted the rest of GEICO.

Since October 1993, GEICO had been run by co-CEOs: its chief investment officer, Lou Simpson, and Tony Nicely, a soft-spoken, silver-haired teddy bear of a man who had worked there since he was eighteen years old and now ran the insurance operations. Nicely had put the pedal to the floor, and GEICO, after a period of dormancy, started adding half a million new customers a year. In August 1994, Buffett talked to Nicely, Simpson, and Sam Butler, the chairman of the board’s executive committee and the man who, many years before, had found Jack Byrne to rescue the company. Nicely, who did not enjoy dealing with Wall Street, had thought ever since he became co-CEO that GEICO should be privately owned.2 He would much rather work for Buffett than a bunch of analysts and money managers.

Butler led the negotiation. He wanted stock and a price in the $70s. Buffett regarded that as outrageous. He wanted to pay cash and a price in the high $50s.3 For a year, they bargained. Buffett pulled out the Circular Saw. This was his technique to cut the floor out from under GEICO by trying to make Butler feel the company was weak and vulnerable. The market was getting out of hand, Buffett said. This high-tech Internet stuff is going crazy and it’s going to hurt the whole industry, including GEICO. You guys have a significant advantage selling over the telephone, but the Internet is going to narrow that quite a bit. It was apparent that by 1994, before the average person even had an e-mail address, Buffett, who supposedly knew nothing about computers, had already grasped how the Internet was going to affect the auto-insurance industry in the coming decades—better than the auto-insurance industry itself had.

But Butler was a tough and experienced lawyer, and couldn’t be Buffetted. Berkshire’s stock price had doubled in two years. That April, with BRK trading at $22,000 a share, Money magazine cited the Overpriced Stock Service newsletter, which said the price of BRK “makes sense only if the company is run by God.” Butler refused to lower his number. He wanted as many Berkshire shares as he could get. The two reached an impasse. Finally, Buffett resorted to the ultimate weapon and brought in Charlie Munger as the Appointed Bad Guy. At Salomon, this had been predictably successful, but Sam Butler proved so tough that he couldn’t even be Mungered.

After a year, it became clear that if Buffett wanted GEICO, he was going to have to meet Butler’s price. Buffett wanted GEICO so badly that he capitulated. In August 1995 he paid $2.3 billion dollars for fifty-two percent of GEICO, after having spent $46 million for the first forty-eight percent. And he paid with Berkshire stock, not cash. Despite having fought so hard, Buffett actually regarded the price as reasonable looked at as a whole, given the bargain he’d gotten on the first half of the stock.

The GEICO deal marked a turning point. The stock market had been on a tear, with new offerings of hot stocks unexpectedly popular in 1994, coming on the heels of a big 1993.4 In February 1995, the Dow hit 4,000 for the first time. Microsoft brought out Windows 95 and sold $700 million worth the first day. Suddenly everyone who worked in an office had a computer on their desk. People bought computers for their kids to do homework after school. Mothers of kindergarteners got e-mail addresses to keep up with carpool news. Web-site designers couldn’t meet the demand from businesses. Computer hackers made front-page news.

In August 1995, an Internet service provider named Netscape went public to raise money for its expansion. Many people were familiar with Netscape’s product, but the company had never earned a dime. So many calls to buy the stock came into banker Morgan Stanley that the company set up a toll-free number to handle them. Orders for 100 million shares poured in for a company that had originally wanted to sell 3.5 million shares.5

Despite Buffett’s use of a computer to play bridge and the insights about the Internet