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A young Warren Buffett had 75% of his allocation in GEICO. If you're certain something is going to go up in the long term, it makes sense to buy as much of it
by ISL 11y ago
A young Warren Buffett had 75% of his allocation in GEICO.
If you're certain something is going to go up in the long term, it makes sense to buy as much of it as you can. You must be certain, and you'd better be right about being certain.
A Buffett-favored aphorism: "Too much of a good thing is wonderful."
If your goal is substantially different performance from a market average, a concentrated position is the ticket. But, unless you're really good, the best you'll do, on average, is average, in which case you'd do better by buying an index.
- tyre 11y agoHis GEICO investment was about more than just him believing in GEICO. It was much more brilliant than that. Insurance companies are wonderful to own because you get access to their capital. They have tons of floating capital that's held in reserves, from premiums, until it needs to be paid out for claims. GEICO was a perfect investment for a young Buffet because he exchanged cash (liquidity) for even more liquidity.
- dripton 11y agoYoung Buffett didn't buy GEICO, the company. He just bought some of its stock. So he didn't get any extra liquidity. Older Buffett bought the company.