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Warren had even considered actuarial science—the mathematics of insurance—as a career. He could have spent decades toiling over tables of mortality statistics, handicapping people’s life expectancies. Besides the obvious ways this suited his personality—which tended toward specialization; relished memorizing, collecting, and manipulating numbers; and preferred solitude—working as a life actuary would have let him spend his time pondering one of his two favorite preoccupations: life expectancy.

However, his other favorite, collecting money, had won out.

Warren was starting to grapple with the fundamental concept of business: How do companies make money? A company was much like a person. It had to go out and find a way to keep a roof over its employees’ and shareholders’ heads.

He grasped that because GEICO sold insurance at the cheapest price, the only way it could make money would be to have the lowest possible costs. He also learned that insurance companies take their customers’ premiums and invest them long before the claims are paid. That sounded to him like getting to use somebody else’s money for free, just the kind of idea that appealed to him.

GEICO seemed to Warren a no-lose proposition.

That Monday, less than forty-eight hours after he arrived back in New York, Warren dumped stocks worth three-quarters of his growing portfolio and used the cash to buy 350 shares of GEICO. It was an extraordinary move for the normally cautious young man.

That was especially true because, at its current price, GEICO was an investment that Ben Graham would not have approved of, even though Graham-Newman had only recently become its largest shareholder. Graham’s idea was to buy stocks trading for less than the value of their assets, and he did not believe in concentrating in just a few stocks. But Warren was amazed by what he had learned from Lorimer Davidson. GEICO was growing so fast that he felt confident of being able to predict what it would be worth in a few years. On that basis, it was cheap. He wrote a report about it for his father’s stockbrokerage firm, saying that GEICO was trading at $42 per share, a multiple of about eight times its recent earnings per share. Other insurance companies, he noted, were selling at much higher multiples of their earnings. Yet GEICO was a small company in a large field, whereas its competitors were companies “whose growth possibilities have largely been exhausted.” Warren then made a conservative projection of the company’s value in five years. He thought the stock would be worth between $80 and $90 per share.27

A less Graham-like analysis could hardly be imagined. Graham’s 1920s bubble and Depression experiences had made him suspicious of earnings projections, so suspicious that while he paid lip service to this method of valuation in his teaching, he never used it himself in valuing stocks to buy for his firm. But Warren was betting three-quarters of his patiently accumulated money on the numbers he had calculated.

In April, he wrote to Geyer & Co. and Blythe and Company, the most prominent brokerage firms specializing in insurance stocks, asking for their research. Next he visited these experts to talk to them about GEICO. After he heard their views, he explained his own theory.

They told Warren he was nuts.

GEICO, they said, could not succeed over the larger, more established companies that used agents. It was a tiny company, with a market share of less than one percent. Huge insurance companies with thousands of agents dominated the industry, and so it would ever be. Yet here was GEICO, growing like a dandelion in June and printing money like the U.S. Mint.

Warren didn’t understand why they couldn’t see what was right before their eyes.

17

Mount Everest

New York City • Spring 1951

As his second semester began at Columbia, Warren hummed with excitement. His father had just been reelected to Congress for a fourth time—by the largest majority yet—and he was finally going to meet his hero.

In his