Warren E. Buffett, 1995

There are several assumptions Warren Buffett might have made when he purchased GEICO. He is famed for saying that acquiring executives think of themselves as beautiful princesses whose kisses will turn 'frogs' -- underperforming companies -- into handsome princes. Believing they can "release the imprisoned princes" (Hambrick & Hayward, 1997, p. 103+). He also said that he'd observed many kisses but very few miracles.

Why, then, might he have bought GEICO, a company admittedly perking along just fine without him, especially considering the acquisition premiums. In view of the increase in share price, it is likely Buffett was relying on the target's pre-existing stock price inadequately reflecting the value of the firm's resources and its prospects. This has been called hubris by some analysts, but it is hubris only if it fails. In the case of Buffett, it did not fail.

In fact, Buffett may have...
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