Intrinsic Value of GEICO

[Spekulatius]

Be careful because the cash GEICO has thrown off has also increased the value of Berkshire (as with See's). He may (though I'm not sure) be including that. He mentioned $15.5B in underwriting profits in Tony's time with GEICO - which one would argue is attributable to Tony's management - while earnings on float are not.

If you take that out from the $50 billion, perhaps he thinks GEICO is worth ~$35 billion.

If you "back into" an intrinsic value, I believe over time GEICO has underwritten to around a 3% underwriting profit margin, which would be $1 billion on current premiums. Including a 5% total return over time on its ~$30B investment portfolio (assuming float is roughly 3x equity as with PGR) would add $1.5 billion pre-tax, for a total of $2.5 billion or ~$1.9 billion after tax. At a 20x multiple (more than fair for a 25% ROE business growing at double digit rates), that's $37 billion.

To Tim's point above, Buffett mentioned in the annual report that the $47 million they paid for the first half would get you a super luxury apartment in Manhattan these days. Here's a fun exercise. Let's say that would rent out for $2 million/year net or something. Even if $47 million would have gotten you 20 luxury apartments in 1976, you'd have $40 million of earning power today.

Meanwhile half of GEICO's earning power pre-tax is $1.25 billion. Allocating capital is crazy.

Not a luxury apartment by any means (at least when bought in 1996), but the appreciation of this real estate asset in Manhattan beats pretty much anything out there:
https://www.ft.com/content/e46c1558-7ccf-11e9-81d2-f785092ab560

Can the creator of this thread correct the title. It hurts my eyes...please.

[Jurgis]

Can the creator of this thread correct the title. It hurts my eyes...please.

Yes, it's spelled "Gekko", people! https://www.imdb.com/title/tt0094291/characters/nm0000140?ref_=tt_cl_t9

[Mephistopheles]

Be careful because the cash GEICO has thrown off has also increased the value of Berkshire (as with See's). He may (though I'm not sure) be including that. He mentioned $15.5B in underwriting profits in Tony's time with GEICO - which one would argue is attributable to Tony's management - while earnings on float are not.

If you take that out from the $50 billion, perhaps he thinks GEICO is worth ~$35 billion.

If you "back into" an intrinsic value, I believe over time GEICO has underwritten to around a 3% underwriting profit margin, which would be $1 billion on current premiums. Including a 5% total return over time on its ~$30B investment portfolio (assuming float is roughly 3x equity as with PGR) would add $1.5 billion pre-tax, for a total of $2.5 billion or ~$1.9 billion after tax. At a 20x multiple (more than fair for a 25% ROE business growing at double digit rates), that's $37 billion.

To Tim's point above, Buffett mentioned in the annual report that the $47 million they paid for the first half would get you a super luxury apartment in Manhattan these days. Here's a fun exercise. Let's say that would rent out for $2 million/year net or something. Even if $47 million would have gotten you 20 luxury apartments in 1976, you'd have $40 million of earning power today.

Meanwhile half of GEICO's earning power pre-tax is $1.25 billion. Allocating capital is crazy.

Not a luxury apartment by any means (at least when bought in 1996), but the appreciation of this real estate asset in Manhattan beats pretty much anything out there:
https://www.ft.com/content/e46c1558-7ccf-11e9-81d2-f785092ab560

Can the creator of this thread correct the title. It hurts my eyes...please.

Can you paste the text of the article? Can’t see it without an FT subscription

[Spekulatius]

ection: Daily Dispatches
Google to Buy Manhattan Building for 100 Times 1996 Price

By Joshua Chaffin
Financial Times, London
Thursday, May 23, 2019

Google has agreed to pay $600 million to acquire a historic building in Manhattan’s Meatpacking District -- a hundred times what it was sold for in 1996 -- in a deal that reflects the tech company's growing footprint in New York City.

For Doug Harmon, one of the agents who brokered the sale, it represents a career milestone: Mr Harmon has sold 450 West 15th St. -- also known as the Milk Building -- five times in a career that has spanned New York’s latest real-estate

"Longevity is a brutal competitive advantage!" quipped Mr. Harmon, the chairman of capital markets at Cushman & Wakefield.
The first time he sold the building, in 1996, the cobbledstoned neighbourhood was a gritty outpost with a reliable supply of transgender prostitutes and illicit drugs. It went for $6 million to Moishe Mana, an Israeli immigrant who grew wealthy after founding a local moving company, Moishe's Moving, and his partner, Erez Shternlicht.

Under their ownership, the eight-storey industrial building led the neighbourhood's turn toward trendy fashion and media company
 sell the building to investment firm Angelo Gordon for $55 million, and then flipped it four years later to Stellar Management for $161 million, which then shifted it -- with his assistance -- to Jamestown, a developer, in 2013 for $284 million.

Now comes Google, whose $2.4 billion purchase of the nearby Chelsea Market last year reinforced the neighbourhood's status as New York City's technology capital. It also helped to cement Mr. Harmon's standing as one of two uber brokers in a real estate-obsessed city. ...

[Jurgis]

Had to call Gekko today to resolve a question about billing. Pretty good experience once I got past the automated "you can use website and mobile app to solve the issue which is not solvable on website or mobile app" system.

Gekko tried to upsell me on homeowner's insurance, but it sucks since they don't write that and they are just selling 3rd party insurance. I'd buy it if it was Gekko directly, but 3rd party just introduces additional unneeded layer, so no. Write your own homeowners insurance guys.