By Rupert Hargreaves. Originally published at ValueWalk.
Almost every investor is aware of Warren Buffett’s GEICO experience. The column Buffett wrote rote called “The Security I Like Best” was one of his first pieces of published writing and is an excellent analysis of the opportunity GEICO offered. However, after his first encounter with GEICO, there was another insurer Buffett fell in love with in 1953. This company was so cheap it was practically impossible for Buffett to pass up. According to the value blog, Base Hit Investing, Buffett referenced Western Insurance at a talk at Columbia in 1993:
Warren Buffett On Western Insurance
“I found Western Insurance in Fort Scott, Kansas. The price range in Moody’s financial manual was $12 to $20. Earnings were $16 per share.”
According to this statement shares in the insurance business were trading at around one times earnings. Just like GEICO, Buffett wrote a column on the opportunity beginning the piece, “again my favorite security is the equity stock of a young, rapidly growing and ably managed insurance company. Although Government Employees Insurance Co, my selection of 15 months ago, has had a price rise of more than 100%, it still appears very attractive as a vehicle for long-term capital growth.”
The article continues:
“Rarely is an investor offered the opportunity to participate in the growth of two excellently managed and expanding insurance companies on the grossly undervalued basis which appears possible in the case of the Western Insurance Securities Company. The two operating subsidiaries, Western Casualty & Surety and Western Fire, wrote a premium volume of $26,009,929 in 1952 on consolidated admitted assets of S29,590,142…
The management headed by RayDuBoc is of the highest grade. Mr.DuBoc has ably steered the company since its inception in 1924 and has a reputation in the insurance industry of being a man of outstanding integrity and ability. The second tier of executives is also of top caliber.”
On to valuation:
“It is quite evident that the common stock has finally arrived, although investors do not appear to realize it since the stock is quoted at less than twice earnings and at a discount of approximately 55% from the December 31, 1952, book value of $86.26 per share.”
And growth potential:
“An earned premium volume of $30,000,000 maybe conservatively expected by 1954.Normal earning power on this volume should average about $30.00 per share, with investment income contributing approximately $8.40 per share after deducting all senior charges from investment income.”
You can find the full article here.
Warren Buffett’s partnerships may be long gone, but today there are several small partnerships out there that invest according to Buffett’s original strategy. ValueWalk’s independent magazine profiles two value-orientated managers quarterly. Managers discuss their investment strategy as well as two investment ideas each. So far, managers’ picks have returned 27%. If you want to find out more, and sign up for a free trial, click here.
The post Warren Buffett: Western Insurance, The Other Security I Like Best appeared first on ValueWalk.
Sign up for ValueWalk’s free newsletter here.
