Buffett’s Analysis of Geico in 1951- Why was it attractive then?

Contributed by: The Big Fat Whale

Here is a look into the mind of Buffett when he was just 21.  He was still a student at the University of Columbia embracing the teachings of Benjamin Graham.

In 1951, as Geico was one of its key holdings of Graham (Graham is also Chairman of the Board), Buffett would want to know more about the company. He took a train down to Washington on a Saturday when the Geico office was closed. He was persistent enough to get the building janitor to lead him to Lorimer Davidson who was the only one working that day. Davidson would eventually be the CEO in 1958.

The encounter gave him a huge head start in the business of insurance that would be one of the key foundations for his future investment framework. Free float in the form of premiums if successfully invested would unleash the power of compounding.

Buffett came up with the thesis of investing in Geico after the meeting and have it published.

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https://thebigfatwhale.com/buffets-analysis-of-geico-in-1951-why-was-it-attractive-then/

Moody's of South East Asia- Credit Bureau Asia

Contributed by: The Big Fat Whale

Credit Bureau Asia has been a stock that we are interested in since its IPO in December 2020 at 93 cents. However, the price has been on an upward trajectory that we missed the move to $1.58 as our value investor mindset sets in.

However, recently the price has dropped back to $1 and it stirs up our interest to take a second look at their business to see if our original bullish thesis is still valid.

Source: Moody's Website

As per our title, when we saw the prospectus of Credit Bureau Asia (CBA), we thought of it as the Moody's of South East Asia where it is providing credit reports and business data to help companies make better decisions. The only thing that might be different would be the pedigree as Moody's was established in 1909- CBA was founded in 1995.

Also, Moody's have the research arm and ability to issue credit rating for corporate bonds but CBA does not have this capability.

 

Reasons to be Bullish

The most important characteristic that attracted us to CBA is that the margins are rich and there is a strong moat; it is not easy to just set up a credit bureau without any connections. This is especially so in developing countries where CBA have a presence like Myanmar, Cambodia and Vietnam (They have just got a foothold in Vietnam recently through a joint venture).

CBA is also carving out their niche by focusing on SEA where they have an edge over others. Another attractive proposition is that it is in a recession-proof business and in times of crisis, the demand for credit reports and analysis might be even higher. Their business is also not capital intensive and therefore will be able to generate good Returns on Investment.

This type of business model is exactly a Buffet type of business with high margins and a strong moat- Buffet has a 13% stake in Moody's.

Here is the link for the full article: 

https://thebigfatwhale.com/moodys-of-south-east-asia-credit-bureau-asia/