What Warren Buffett learned from his GEICO investment

Now that we are up to date with the GEICO story – but definitely not at the end of the story:  it still has a great future ahead of it – it is useful to remind ourselves of the key lessons Buffett learned or reinforced through this experience, and, by extension, what we can take away from the saga and make use of in our investment approach.

1. Focus on the franchise. When a company seems down and out due to recent managerial errors then is the time to conduct your own analysis to see if its once-triumphant economic franchise has survived in some form, and it can be revived and strengthened.
2. Understand the quality and characters of the key people. Make sure the senior individual(s), (a) understands the nature of the economic franchise, (b) will intelligently and energetically pursue profits, and (c) will act with high integrity regarding shareholders.
3. Do not sell early. Buffett could have sold at a multiple of the initial share price any time, but he held.  If the franchise remains intact, generating high rates of return on capital, and controlled by good managers then, even if your initial investment has multiplied 50-fold (1976 to 1996) it might be worth buy more, not selling.
4. Look for virtuous……….………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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