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Quote of the Day

“Charlie and I never give [projections by sellers] a glance, but instead keep in mind the story of a man with an ailing horse:

Visiting the Vet, the man said: “Can you help me? Sometimes my horse walks just fine and sometimes he limps.”

The Vet’s reply was pointed: “No problem – When he’s walking fine, sell him.”

In the world of mergers and acquisitions, that horse would be peddled as Secretariat.”

-Warren Buffett in his 1995 shareholder letter

August 25th – This Day in Stock Market History

August 25th, 1987 – The Dow Jones Industrial Average reaches a record high of 2722.42, which would ultimately be the market’s high before the 1987 crash.

However, despite the worst day in stock market history on October 19th, 1987, stocks would recover to their pre-crash 1987 levels in less than two years. The Dow would be back over 2,722 by August 24th, 1989.

Chart from macrotrends
Chart from macrotrends

August 25th, 1995 – Berkshire Hathaway announces its purchase of  GEICO for $70 per share, $2.3 billion.

New York Times coverage of Buffett's purchase of GEICO on August 25th, 1995
New York Times coverage of Buffett’s purchase of GEICO on August 25th, 1995

On this day 1995, Geico shares would rise $12.875 to $68.625 per share. Berkshire Hathaway shares (A-Class) would rise $600 to $25,400 per share.

Buffett made his first purchase of GEICO for Berkshire in 1976 (500,000 shares at $2 1/8!). By 1982 Berkshire would accumulate 35% of GEICO shares, and build a position that would represent half of Berkshire’s equity investments!

Then, GEICO began aggressively repurchasing its own shares, a move that would eventually result in Berkshire owning 51% of the company. On this day in 1995, Buffett bought the remaining 49%.

There is a great article on the history of Buffett/Berkshire’s investments with GEICO here:

Best August 25th in Dow Jones Industrial Average History

1933 – Up 3.61%, 3.66 points.

Worst August 25th in Dow Jones Industrial Average History

2008 – Down 2.08%, 241.81 points.

Read of the Day

Buffett provided plenty of notice to investors that he liked GEICO stock before his purchase in 1995. Back in 1951 Buffett wrote an article titled “The Security I like Best” in The Commercial and Financial Chronicle. You can read his article in full below: (Click to enlarge)

Buffett_the_security_I_like_best

<– Go To Previous Day: August 24th, 2015: Flash crash sends the Dow down more than 1,000 points. Many stocks down 20%+

Go To Next Day: August 26th, 1983: Berkshire Hathaway shares close over $1,000 for the first time. –>