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In 1924 Davidson had made $1,800 in commissions in his first week selling bonds. Over time, he began to play the stock market using borrowed money, trading “Radio,” the Radio Corporation of America, or RCA. In July 1929, he “shorted” Radio, which was trading at an absurd price, betting that it would go down. But absurd prices can become even more absurd, and when the stock went up another 150 points, Davidson lost everything. Then, when the market crashed on October 29, he had to forget his pregnant wife and the loss of every cent he’d ever made in order to navigate the horror his clients now faced. He and his colleagues stayed up until five a.m. calling their accounts. Almost without exception, they, too, had traded on borrowed money.

At first the clients came up with the cash to repay their loans. Market seers and government officials kept saying stocks would quickly rebound. They got the velocity right but the direction all wrong. With each succeeding wave of “margin” calls, half of Davidson’s remaining clients were wiped out, unable to pay their debts, forfeiting their accounts. Davidson, who had been pocketing an incredible $100,000 a year in commissions before the crash,23 was soon making about $100 a week selling bonds—and considering himself well off. “It was a pretty sorry sight,” he recalled of those Depression years, “to see an old friend, married with children, very successful, and now he has to work to get a nickel for an apple” selling fruit at the corner of Wall and Broad.

It was through his job selling bonds that Davy happened to call on the Government Employees Insurance Company. When he found out how GEICO worked, he was instantly captivated.

GEICO sought to make auto insurance cheaper by marketing through the mail without an agent.24 That was a revolutionary concept at the time. To make it work, GEICO needed a rule that would allow it to avoid the folks who drive thirty miles over the speed limit after downing half a bottle of tequila at three a.m.25 Borrowing an idea from a company called USAA that sold only to military officers, GEICO’s founders, Leo Goodwin and Cleves Rhea, had decided to sell its insurance only to government employees because, like military officers, they were responsible individuals who were accustomed to following the law. Better still, there were a lot of them. Thus, the Government Employees Insurance Company was born.

Later, the Rhea family had hired Davidson to sell their stock, since they were based in Texas and no longer wanted to commute. While putting together a syndicate of buyers, he approached Graham-Newman Corporation in New York. Ben Graham was interested but deferred to his gruff partner, Jerry Newman. “Jerry thought that to buy something at the offering price was illegal. He said, ‘I never bought anything at the offering price before; I’m not going to start now,’” Davidson said.

They dickered. Davidson brought Jerry Newman around to investing $1 million for fifty-five percent of the company, with some modest concessions. Ben Graham became chairman of GEICO, and Newman joined its board. Six or seven months later, Lorimer Davidson told GEICO’s CEO Leo Goodwin that he would take a pay cut to work for GEICO, managing its investments. Goodwin consulted with Ben Graham, who agreed.

Hearing this story from Davidson, Warren was fascinated. “I just kept asking questions about insurance and GEICO. He didn’t go to lunch that day—he just sat there and talked to me for four hours like I was the most important person in the world. When he opened that door to me, he opened the door to the insurance world.”

Now, the door to the insurance world is one most people would rather stayed firmly nailed shut. But insurance was taught in business schools, Warren had studied it at Penn, and there was an aspect of it a little like gambling that intrigued the oddsmaker in him. He had become interested in an insurance scheme called a tontine, in which people pool their money and