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1986 GEICO Corporation Annual Report to Shareholder

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Since the performance of GEICO’s common stock portfolio has contributed significantly to the increase in value of your investment in GEICO, I thought you might be interested in learning more about our investment approach. In an abbreviated form, here are some of our guidelines: 由于GEICO普通股投资组合的表现对您在GEICO的投资价值增加做出了重大贡献,因此我认为您可能有兴趣了解更多关于我们的投资方法的信息。以下是我们的一些准则:

  1. Think independently. We try to be skeptical of conventional wisdom and to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street. Such behavior often leads to excessive prices and, eventually, permanent loss of capital. We don’t ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.独立思考。我们试图对传统智慧持怀疑态度,并避免周期性地席卷华尔街的非理性行为和情绪浪潮。这种行为往往导致价格过高,并最终导致资本的永久性损失。我们不会忽视不受欢迎的公司。相反,这种情况往往带来最大的机会。
  2. Invest in high-return businesses run for the shareholders. Over the long run appreciation in share prices is most directly related to the return the company earns on its shareholders’ investment. Cash flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick. Companies that cannot earn positive free cash flow (cash flow after capital expenditures, working capital needs and dividends) chew up owners’ equity and are continually forced to raise new capital. We try to identify companies that appear able to sustain above-average profitability. Most companies cannot because competition prevents it. Many executives have priorities other than maximizing the value of their enterprises for owners, such as expanding corporate empires. At GEICO we ask the following questions in evaluating management: 1. Does management have a substantial stake in the stock of the company? 2. Is management straight forward in dealings with the owners? (We look for managers who treat us as partners in the business and inform us frankly of problems as well as good news.) 3. Is management willing to divest unprofitable operations? 4. Does management use excess cash to repurchase shares.The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources. At GEICO, we practice what we preach — we concentrate on our core business, and over the past eight years have reduced shares outstanding from over 34 million to under 17 million.投资于 为 股东经营的高回报业务。 从长远来看,股价升值与公司股东投资回报最直接相关。现金流比报告的收益更难操纵,是一个有用的额外衡量标准。无法获得正自由现金流(资本支出、营运资金需求和股息后的现金流)的公司会吞噬所有者权益,并不断被迫筹集新资本。我们试图识别那些似乎能够维持高于平均水平的盈利能力的公司。大多数公司做不到,因为竞争阻止了它。许多高管的优先事项不是最大化其企业对所有者的价值,例如扩大企业帝国。在GEICO,我们在评估管理层时会问以下问题:1.管理层是否在公司股票中拥有大量股份?2. 管理层在与股东打交道时是否直截了当?(我们寻找那些将我们视为业务合作伙伴并坦率地告知我们问题和好消息的经理。)3. 管理层是否愿意剥离无利可图的业务?4. 管理层是否使用多余的现金回购股票。最后一个可能是最重要的。盈利丰厚的管理层经常使用多余的现金来扩展到利润较低的业务。在许多情况下,回购股票是对剩余资源的更有利的利用。在GEICO,我们言出必行——我们专注于我们的核心业务,在过去八年中,已将流通股从3400多万股减少到1700万股以下。
  3. Pay only a reasonable price, even for an excellent business. We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world’s greatest business is not a good investment if the price is too high. The ratio of price to earnings (PE) and its inverse, the earnings yield, are useful gauges in valuing a company, as is the ratio of price to free cash flow. A helpful comparison is the earnings yield of a company versus the return on a risk-free long-term United- States Government obligation.支付公道的价格,即使是优秀的业务。 我们试图在为所有权支付的价格上遵守纪律,即使在一个明显优越的企业中也是如此。如果价格太高,即使是世界上最伟大的企业也不是一个好的投资。市盈率 (PE) 及其倒数(盈余收益率)是衡量公司估值的有用指标,价格与自由现金流的比率也是如此。一个有用的比较是公司的收益收益率与无风险的长期美国政府债务的回报。
  4. Invest for the long-term. Attempting to guess short-term swings in individual stocks, the stock market or the economy is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long-term. Furthermore, moving in and out of stocks frequently has two major disadvantages that will substantially diminish results: transaction costs and taxes. Capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.长期投资 。试图猜测个股、股市或经济的短期波动不太可能产生持续的好结果。短期发展太不可预测了。另一方面,优质公司的股票极有可能在长期内为投资者提供高于平均水平的回报。此外,经常买卖股票有两个主要缺点,会大大降低收益:交易成本和交税。如果收益的复利增长受更少的佣金和税收中断的影响,资本将增长得更快。
  5. Do not diversify excessively. An investor is not likely to obtain superior results by buying a broad cross-section of the market — the more diversification, the more performance is likely to be average, at best. We concentrate our holdings in a few companies that meet our investment criteria in the belief that we have a chance at superior results only if we take risks intelligently, when the risk-reward ratio is favorable to us. Good investment ideas, that is, companies that meet our criteria, are difficult to find. When we think we have found one, we make a large commitment. The five largest holdings at GEICO account for over 50% of your equity portfolio. 不要过度分散投资。投资者不太可能通过购买指数来获得卓越的结果——越多样化,表现就越可能平均,充其量是平均水平。我们将持股集中在少数符合我们投资标准的公司,相信只有当风险回报率对我们有利时,我们才有机会明智地承担风险,从而获得卓越的结果。好的投资理念,即符合我们标准的公司,很难找到。当我们认为我们已经找到了一个时,我们就会做出很大的下注。GEICO的五大持股占您股票投资组合的50%以上。

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