The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [523]
20. Not, as has been written, from Who’s Who in America. However, he may have learned it from reading Moody’s, hearing it from David Dodd or Walter Schloss, or from a newspaper or magazine source.
21. Due to a legal technicality, this divestiture of GEICO stock was required in a consent order with the SEC in 1948. Graham-Newman violated Section 12(d)(2) of the Investment Company Act of 1940, although “in the bona fide, though mistaken, belief that the acquisition might lawfully be consummated.” A registered investment company (Graham-Newman was “a diversified management investment company of the open-end type”) cannot acquire more than 10% of the total outstanding voting stock of an insurance company if it does not already have 25% ownership.
22. GEICO oral history interview of Lorimer Davidson by Walter Smith, June 19, 1998, and also see William K. Klingaman, GEICO, The First Forty Years. Washington, D.C.: GEICO Corporation, 1994, for a condensed version of this story.
23. Making $100,000 in 1929 was equivalent to making $1,212,530 in 2007.
24. By 1951, GEICO was deemphasizing mailings in favor of platoons of friendly telephone operators who answered the phone at regional offices and were trained to quickly screen bad risks.
25. A type of auto insurer called “nonstandard” specializes in these customers, surcharging them, say, 80%. USAA and GEICO at the time were “ultra-preferred” companies, specializing in the best risks.
26. The main problem with tontines was that people were gambling with their life insurance policies instead of using them as protection. Originally a “survivor bet,” expulsion from a tontine pool was later based on failure to pay premiums for any reason. “It is a tempting game; but how cruel!” Papers Relating to Tontine Insurance, The Connecticut Mutual Life Insurance Company, Hartford, Conn.: 1887.
27. Office Memorandum, Government Employees Insurance Corporation, Buffett-Falk & Co., October 9, 1951.
Chapter 17
1. Benjamin Graham, The Memoirs of the Dean of Wall Street. New York: McGraw-Hill, 1996. Anecdotal material from this source has been verified with Warren Buffett.
2. In 1915, members of the Grossbaum family, like many American Jews, began to anglicize their name to Graham in response to the anti-Semitism that flourished during and after World War I. Ben’s family made the change in April 1917. Source: November 15, 2007, speech by Jim Grant to the Center for Jewish History on “My Hero, Benjamin Grossbaum.”
3. Graham was born in 1894, the year of one of the biggest financial panics in American history, which was followed by the depression of 1896–97, the panic of 1901, the panic of 1903–04 (“Rich Man’s Panic”), the panic of 1907, the war depression of 1913–14, and the postwar depression of 1920–22.
4. Benjamin Graham, Memoirs.
5. Ibid.
6. Ibid.
7. Traditionally, people came to Wall Street in one of two ways. Either they entered the family business by following a relative into the job, or, having no such connection, they “came up through the hawsehole,” to use a nautical expression common on Wall Street at the time, starting young as a runner or board boy and working their way up, like Sidney Weinberg, Ben Graham, and Walter Schloss. Attending business school with the conscious intention of working on Wall Street was essentially unheard of until the early 1950s because most areas of finance, and especially the art of security analysis, had not developed as academic disciplines.
8. Details of Graham’s early career are from Janet Lowe’s Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street. Chicago: Dearborn Financial Publishing, 1994.
9. Graham believed that one could be swayed by personality and salesmanship by going to meetings with a company’s management, so this was partly a way of remaining dispassionate. But Graham was also not particularly interested in human beings.
10. Interview with Rhoda and Bernie Sarnat.
11. As cited by Lowe.
12. Benjamin Graham, Memoirs.
13. Ibid.
14.