No flash, just Buffett

The multibillionaire attends the grand opening of a GEICO call center in Lakeland, hamming it up with employees.

By KYLE PARKS

© St. Petersburg Times, published December 15, 1999

Being Warren Buffett: It's fun Yes, Berkshire Hathaway Inc. chief executive Warren Buffett is a billionaire. But how much money does he carry in his wallet?

LAKELAND -- Warren Buffett, the world's most famous stock investor, came to a most unlikely place Tuesday: a new GEICO insurance call center in the middle of a central Florida pasture.

He was there to cut a big grand-opening ribbon for GEICO, one of the biggest subsidiaries in his Berkshire Hathaway Inc. holding company. And while he was there, he showed why he's perhaps the world's most unassuming billionaire.

Buffett shook hands with hundreds of GEICO employees, posing for gag photos while he pretended to whisper stock secrets in their ears or hand them his wallet. He signed everything from $100 bills to copies of the book that taught him many of his principles, Benjamin Graham's The Intelligent Investor.

And in remarks at the ceremony for the new $22.7-million building and in a meeting with journalists, he talked about his longstanding love of GEICO and his determination to dramatically expand its share of the nation's personal auto insurance business.

Warren Buffett waits to speak at the dedication ceremony for a new GEICO call center in Lakeland. [Times photo: Ken Helle]

With his tortoise-shell glasses and self-deprecating humor, the so-called "Oracle of Omaha" doesn't come across as someone who's worth an estimated $31-billion, ranking him third behind Microsoft Corp. founders Bill Gates and Paul Allen on Forbes magazine's list of the nation's wealthiest people.

He still lives in the Omaha, Neb., house he bought for $31,500 in 1958. He favors nondescript dark suits and understated ties. And he doesn't show off about his investing success.

But Buffett, 69, has had Wall Street's most spectacular run in the past 30 years. If you had bought $10,000 of Berkshire stock when Buffett took control of the company in 1965, it would be worth about $50-million today, 100 times the gain of the Standard & Poor's 500 index.

His annual report to shareholders may be the most watched development of the year on Wall Street, and 15,000 people traveled to Omaha in May for Berkshire's annual meeting so they could hear the chairman speak. Buffett calls the event "Woodstock for Capitalists."

But this hasn't been the best of years for Buffett. Long known for his aversion to technology stocks, he has seen Berkshire's investments in longtime stock-market stalwarts such as Coca-Cola Co., Gillette Co. and Freddie Mac suffer.

The market has lost confidence in him -- Berkshire's stock price is down 23 percent for the year, and for the first time since 1980, Buffett won't beat the S&P's performance this year.

At the same time, the companies that Berkshire owns outright have struggled to make money. Competition has kept insurance premiums down, which hurts Berkshire's GEICO and General Re insurance businesses. In the first nine months of the year, Berkshire's net income was $1.5-billion, compared with $2.3-billion a year earlier.

Not to worry, Buffett said Tuesday. Famous for his long-term investing strategy, he's not about to change course.

He will continue to avoid tech stocks like a plague -- "it's beyond me," he said. He has shown confidence in Berkshire's stock holdings by sticking with them. And he's sure that Berkshire's costly strategy of building market share in the insurance business will pay off.

Though he's most famous for making his company's stock picks, Buffett has quietly shifted Berkshire's focus to owning companies outright. Three years ago, the company's stock portfolio accounted for 76 percent of its assets. Now, that figure is down to about 30 percent. Berkshire owns everything from the Dexter shoe company to See's Candies Inc. to Executive Jet Aviation Inc.

Market experts say Buffett has gotten more aggressive, not just looking for companies that are in trouble and are selling for a discount. "I look at what their long-term competitive advantage is and that it's something that is enduring," he said. "I have to understand what they sell, why people buy it, why people might buy something else."

Increasingly, Berkshire's success is tied to the insurance business, particularly to GEICO.

Buffett's love affair with the company goes back to 1951, when he was at Columbia University learning about investing from Benjamin Graham. After finding out that Graham was chairman of GEICO, Buffett hopped a train from New York to Washington to check out the company in person.

"I got there on a Saturday, and the place was closed up," Buffett said. "I pounded on the door, and eventually a custodian answered. I asked him if there was anyone I could talk to. He said the only other person there was on the sixth floor, and I could go see him."

That person was Lorimer Davidson, the chief investment officer of the company. Davidson spent more than four hours with Buffett, giving him a crash course on the insurance industry and GEICO.

Buffett was hooked. After he returned to Omaha, his first stock sale -- to his Aunt Alice -- was for 100 shares of GEICO.

By 1976, Buffett had turned Berkshire Hathaway into an investment powerhouse, and he was able to rescue GEICO from insolvency with a $48-million investment. Then, three years ago, he spent $2.3-billion to buy the 49 percent of the company Berkshire didn't already own.

Now, the push is to build market share, even if the average upfront cost of getting a new customer is 130 percent of a policy's first-year premium. Four years ago, GEICO had 2.7 percent of the nation's personal auto insurance business; now, it has 4.1 percent.

For Berkshire, the reward will come two ways. If GEICO rates its policyholders correctly and they stay with the company, it reaps profits on their premiums over time. And as new customers sign up, their premiums increase Berkshire's "float" -- the reserve that can be used to make investments elsewhere.

GEICO has increased its advertising budget from $32-million four years ago to about $200-million this year, and it will go up again next year. "You are going to get sick of our ads," Buffett said.

And though Buffett said repeatedly Tuesday that he wouldn't talk about Berkshire's problems -- "You don't talk about Father on Mother's Day, and today, GEICO is Mother's Day," he said -- it's clear that he sees a growing insurance business as a key to Berkshire's future.

"Warren has told us that in 10 years, he wants GEICO to have a 10 percent market share," GEICO chief executive Tony Nicely said.

Buffett's appearance showed what a big deal the GEICO facility is for Lakeland. It now has about 1,200 workers processing claims and handling sales, and that number is expected to grow to about 3,000 workers by 2004. Buffett flew in from Omaha on Tuesday morning, and Tuesday night he left for Macon, Ga., to attend a similar GEICO function today.

During the plane ride to Lakeland, he worked on his famed annual report message. As always, it will be released March 15 after the stock markets close.

"I find that 5 percent of the time is spent writing it," he said, "and another 95 percent just on fooling around with it."

© St. Petersburg Times. All rights reserved.