1. Doug Smith, “Solid Buffett Voice Melts Debut Jitters,” Omaha World-Herald, May 9, 1975.
2. Interview with Charlie Munger.
3. Interviews with Roxanne Brandt, Walter Schloss. Brandt later jokingly admitted this was grounds for divorce.
4. New York Daily News, October 30, 1975.
5. As of December 2007, these shares would be worth $747 million.
6. That Buffett, who had never borrowed a significant amount of money in his life, thought it made sense for his sisters to buy Berkshire stock using borrowed money, with only 5% down, speaks volumes about how cheap he thought the stock was and how good its prospects were at the time.
7. Berkshire owned so much Washington Post stock and Buffett’s position on the board was such that, if it bought a TV station, its ownership would be attributed to the Washington Post, pushing it over the limit of five stations that it could own.
8. Howard E. Stark letter to Warren Buffett, June 18, 1975. Also see Lee Smith, “A Small College Scores Big in the Investment Game,” Fortune, December 18, 1978.
9. Interview with George Gillespie.
10. According to Graham’s Personal History (New York: Alfred A. Knopf, 1997), this contract would have given the pressmen the highest wages in the nation and security from layoffs. Negotiations broke down in part because the Post refused to hire back the workers who had damaged the presses.
11. According to Personal History, fifteen former Post pressmen pleaded guilty to various misdemeanor charges. Six who had damaged presses and committed more serious crimes were jailed.
12. They sold their interest in Source Capital to its managers.
13. With the press strikes and Watergate affair behind her, Katharine Graham began to focus on growth at the Washington Post in the mid-1970s. Up until then, the company didn’t have sufficient profits and there was “little more than a hit-or-miss strategy” for growth (Personal History). Sales and earnings started to take off in 1976, around the time that they started buying back company stock. Earnings per share were $1.36 in 1976 vs. $0.36 in 1970. Return on equity was 20% compared to 13%. Profit margin grew to 6.5% from 3.2%. And it kept improving from there (Value Line report, March 23, 1979).
14. Charles Munger letter to Katharine Graham, November 13, 1974.
15. Interview with Don Graham.
16. C. David Heymann, The Georgetown Ladies’ Social Club. New York: Atria Books, 2003.
17. Interview with Don Graham.
18. Interview with Susie Buffett Jr., who credits her parents for not interfering.
19. Interview with Susie Buffett Jr.
20. Interview with Dick and Mary Holland.
21. Interview with Susie Buffett Jr.
22. Interview with Howie Buffett.
23. In an interview Peter Buffett described his routine at this time.
24. According to friends of Susie’s who say she blamed Graham for the relationship.
25. Al Pagel, “What Makes Susie Sing?” Omaha World-Herald, April 17, 1977.
26. Ibid.
27. This is Jack Byrne’s recollection of Davidson’s remonstration in an interview. Jack being a colorful guy, it is possible that his recollection is a bit more colorful than what Davidson actually said.
28. Interview with Tony Nicely.
29. Warren Buffett memo to Carol Loomis, July 6, 1988.
30. By 1974, the whole insurance industry was producing what rating agency A. M. Best called “unbearable” losses of $2.5 billion from a vicious price war and inflation of everything from car repairs to lawsuits. (A.M. Best Company Comment on the State of and Prospects for the Property/Liability Insurance Industry, June 1975.) The states were also passing “no-fault” insurance legislation, which meant that insurers had to pay for an accident regardless of who caused it. The federal government also slapped price controls on the industry during the Middle East war. Meanwhile, the devastating stock market of 1973–74 had wiped so much value from GEICO’s stock portfolio that for every share of stock, investments that had once been worth $3.90 were now worth a dime a share (Leonard Curry, “Policy Renewed: How GEICO Came Back from the Dead,” Regardie’s, October/November 1982).
31. GEICO had $500 million in premiums and would have needed capital of $125 million to meet regulatory and rating agency standards for leverage.
32. Interview with Sam Butler.
33. Interview with Jack Byrne. “The bastards at Travelers had passed me over for president for Ed Budd,” recalls Byrne (who likes to tell this story and tells it often). “A million dollars invested with me is now worth a billion, and a million dollars invested with Ed Budd is now worth $750,000. And I used to be pissed, but obviously I’m more mature about it now. Well, I’m still pissed.” This story is also recounted in William K. Klingaman, GEICO, The First Forty Years. Washington, D.C.: GEICO Corporation, 1994.
34. Interview with Jack Byrne.
35. “GEICO’s Plans to Stay in the Black,” BusinessWeek, June 20, 1977. It is Byrne’s impression that Wallach did not like him.
36. GEICO had too little capital under regulatory standards to ensure its ability to pay claims on all its policies. By transferring some of its business to competitors, the company would relieve the strain on capital.
37. Interview with Rhoda and Bernie Sarnat.
38. Interview with Lou Simpson.
39. “Leo Goodwin Jr. Is Dead at 63; Headed GEICO Insurance Concern,” New York Times, January 18, 1978; “Leo Goodwin, Financier, Son of Founder of GEICO,” Washington Post, January 18, 1978.
40. Interview with Don Graham.
41. Warren Buffett memo to Carol Loomis, July 6, 1988.
42. Blue Chip bought 14% of Pinkerton’s in March 1976 and Buffett went on the board, a thrill to the erstwhile boy detective who had also busted open Boys Town’s hidden war chest.
43. Interview with Bill Scott.
44. Wallach had invited big insurers to buy up 40% of GEICO’s reinsurance treaties, giving them until June 22 to make their decision to participate. Not enough insurers signed up. Wallach was supposed to decide by Friday, June 25, whether to shut GEICO down. He extended the deadline and, in mid-July, revised his rescue plan—requiring only 25% of GEICO’s premiums to be taken up by the insurance pool and lowering the amount of capital they needed to raise by year-end to $50 million. Reginald Stuart, “Bankruptcy Threat Fails to Change Status of GEICO,” New York Times, June 26, 1976; Reginald Stuart, “The GEICO Case Has Landed in His Lap,” New York Times, July 4, 1976; Matthew L. Wald, “GEICO Plan Is Revised by Wallach,” New York Times, July 16, 1976.
45. National Indemnity was a specialty company, not yet so large or well-known that it would cause too much push-back on the grounds of helping a competitor. Buffett’s other insurers, as will be seen, were struggling.
46. Who knows what General McDermott actually wrote, but any endorsement at all from him would have carried weight among insurers.
47. Some of the people instrumental in making it happen were former GEICO employees, according to Byrne.
48. Interview with Jack Byrne.
49. John Gutfreund quoting Frinquelli in an interview. Frinquelli did not return calls requesting an interview.
50. Interview with Sam Butler.
51. Leonard Curry, “Policy Renewed.” According to some sources, Butler also had an instrumental role in convincing Gutfreund to underwrite the deal.
52. Without a doubt it had not. Among other things, GEICO had failed to disclose a change in method of calculating loss reserves, which had enabled it to boost profits by $25 million during the second and third quarters of 1975. “In the Matter of GEICO et al.,” October 27, 1976.
53. Leonard Curry, “Policy Renewed.”
54. Interview with John Gutfreund.
55. An indication of “aftermarket support” was a principal component in underwriters’ assessments of how a stock might trade once it was listed. The presence of aftermarket support helped prevent a “busted deal” in which the underwriter had to buy back the offering with the firm’s own capital.
56. Byrne’s recollection is that Tom Harnett, the New York superintendent, helped rally the industry to get behind the reinsurance. Harnett, he believes, had an incentive because the New York guaranty fund was prefunded and had invested in Big Mac New York City bonds, which were selling at a fraction of their par value. The insolvency funds in effect had evaporated in the wake of New York City’s financial crisis.
57. Byrne has told this story more vividly in times past. In Roger Lowenstein’s Buffett: The Making of an American Capitalist (New York: Doubleday, 1996), he supposedly said to Sheeran, “Here’s your fucking license. We are no longer a citizen of the state of New Jersey.” He calls Sheeran “the worst insurance commissioner ever.”
58. Disgruntled employees, hearing the news about their jobs, started throwing policies out the top-story window. “Files were floating all around North Jersey in the air,” says Byrne. Nobody knew this until GEICO moved the claims office to Philadelphia, “when we went to move the files and they weren’t there.” Byrne estimates the lost data cost the company as much as $30–40 million in excess claims. GEICO also gave up its license in Massachusetts. It stopped writing business in many other states without surrendering the right to do so in the future. In total, the company nonrenewed 400,000 out of its 2.2 million policyholders.
59. Interview with Jack Byrne. The author first heard this story from a secretary who formerly worked for Byrne.
60. Interview with Jack Byrne.
61. Interview with Tony Nicely.
62. James L. Rowe Jr., “Fireman’s Fund Picks Byrne,” Washington Post, July 24, 1985; Sarah Oates, “Byrne Pulled GEICO Back from Edge of Bankruptcy,” Washington Post, July 24, 1985.
63. Graham Group members, Buffett friends, and Berkshire employees such as Marshall Weinberg, Wyndham Robertson, Verne McKenzie, Gladys Kaiser, Bob Goldfarb, Tom Bolt, Hallie Smith, Howie Buffett, and Peter Buffett all remember Grossman fondly.