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Tuesday, February 24, 2015

Memory of the Month: Dynamic duo

GrahamNewmanEach month, we share an image from GEICO’s past and invite you to comment or exercise your caption-writing skills.

We revere Leo Goodwin here at GEICO. He was GEICO’s founder – a man who gave up an executive position at another insurer to launch his own insurance company. Without agents, contrary to what was by far the dominant insurance business model. In the middle of the Great Depression.

Daring, storybook stuff, that. But brilliant and visionary as he was, Goodwin couldn’t have done it alone; he lacked the capital for such a venture. Texas banker Cleaves Rhea actually owned 75 percent of Goodwin’s fledgling company from its inception in 1934 (it didn’t become Government Employees Insurance until 1936) until it was a thriving 13-year-old business. At that point, weary of monthly train trips from Texas to Washington and back, Rhea decided to sell his stake in GEICO.

The two gentlemen pictured here, Ben Graham and Jerry Newman, ran the investment company that bought most of Rhea’s interest in GEICO. They wound up owning 55 percent of the company, which was converted into 175,000 shares of stock and distributed to the approximately 300 shareholders of the Graham-Newman Corporation in 1948.

Graham and Newman joined the GEICO Board of Directors, Graham as chairman. As important as both gentlemen were in GEICO’s development over the ensuing years, Graham contributed to the company’s fortunes in another, perhaps more significant way. In addition to his investment activities, Graham taught investing at Columbia University, where one of his most apt pupils was a young Warren Buffett, who became a legendary investor in his own right, and chairman of Berkshire Hathaway.

It was Graham who sparked Buffett’s interest in GEICO, which was the first stock Buffett ever purchased. Buffett subsequently sold those shares, but later bought more – and more and more, until he owned roughly half of the company’s stock. Then, in 1995, he made a very generous offer to buy all the shares he didn’t yet own.

That deal was consummated in early 1996, and GEICO has been a Berkshire Hathaway company ever since. But the long and mutually beneficial relationship between Buffett and GEICO might never have come to pass if not for Ben Graham and Jerry Newman.

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