Interestingly enough, Buffett's business strategies have facilitated the growth of his business with a closing share price that jumps from $89 in 1977 to $25,400 in 1995. Berkshire Hathaway originally began in the textile business and has diversified into multiple areas landing a position as a company to be reckoned with. Gazing at his successful endeavors, many experts and business entrepreneurs have studied his diversification strategies to try to duplicate some of the successes. Research shows that Mr. Buffet focuses on the intrinsic value of companies thereby focusing on companies with undervalued stocks. History has shown repeatedly that his methods do in fact, work.
In sum, the question whether the GEICO acquisition served the long-term goals of Berkshire Hathaway is a simple one to address. Their strategy is to measure performance by gain in intrinsic value and not by accounting for profits. Mr. Buffet's economic goal is to maximize the average annual rate of gain in intrinsic business value on a per share basis which is exactly what he did with the GEICO acquisition. This leads to the price of share Berkshire paid for GEICO. Was the price fair? Initially, it appeared that Berkshire Hathaway paid more than the stock price valued GEICO at that time; however, the stock was undervalued and thus they made a killing as evident with the abrupt increase in their stock price.