If you had purchased Berkshire Hathaway stock on December 6, 1976, you paid approximately $77. At yesterday’s closing price, one share of the same firm (BRK/A) was $127,550. (Looking at the BLS CPI inflation calculator, $77 in 1976 is equal to the buying power of $298.02 today.)
Annually, Warren Buffett, the person responsible for the astronomical increase in Berkshire Hathaway’s share price, sends his letter to shareholders. 26 pages long, it is statistical, it is folksy, it expresses general investing acumen, specific performance information, and even a letter to his uncle from his grandfather about always having a financial reserve. I recommend reading it all. For now, though, I wanted to share one story from the letter. It reveals the secret to success.
The story involves Mr. Buffett’s first contact with GEICO, a firm that Berkshire Hathaway owns. As a business student at Columbia, 60 years ago, Mr. Buffett’s idol was Ben Graham, the co-author of a classic investing “primer.” When Buffett discovered that Graham was the chairman of the Government Employees Insurance Co (now GEICO), he decided, one Saturday, to visit the company’s headquarters in Washington, D.C. When he arrived, the door was locked because the offices were closed on Saturday. Buffett’s response? To knock and shout until a janitor appeared. Asked if anyone was there, the janitor took him to the office of Lorimer Davidson, an executive who later became GEICO’s CEO. Davidson spoke with his young visitor for 4 hours.
Fast forward to 1996 when Mr. Davidson made a video expressing his pleasure that his firm, GEICO, would “permanently reside” with Berkshire Hathaway. He also “playfully concluded” by saying, “Next time, Warren, please make an appointment.”
The Economic Lesson
Both Adam Smith and John Maynard Keynes wrote about the spirit exhibited by Warren Buffet as a student. Smith might have referred simply to the business activity generated by self-interest while Keynes could have taken us to the motivational role of “animal spirits.”