1995: Why did Buffett pay a premium to market value for the last half of GEICO?

AUDIENCE MEMBER: Good morning, Mr. Buffett and Mr. Munger.

As an aspiring shareholder, I’m very happy and proud to be here. Maybe I can encourage Mr. Munger to respond to my question this morning.

In regards to your purchase of the other half of GEICO, would you comment on your reasoning behind paying the premium above market value and why you, instead, did not purchase shares in the open market?

CHARLIE MUNGER: Well, we couldn’t have purchased very many shares in the open market at the quoted price. And the price we paid, with the large number of shares we got, we thought was a very satisfactory price.

WARREN BUFFETT: Yeah. We — what Charlie said is a hundred percent right. We also had a restriction that we agreed to many, many years ago — almost 20 years ago — as to the number of shares we would own without the consent — of the directors and, I believe, the Insurance Department.

So, we actually had some special restrictions on us in the case of GEICO. But if we hadn’t have had those restrictions, we’d have behaved in exactly the same manner.

And we didn’t think we could buy it any cheaper than that price. And we gulped a few times and paid it. And I think we will be happy that we did, as it’s turning out.

GEICO is doing very well. It — I mean, I knew it would do well. But I feel very good about it.