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As I read Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) annual reports recently, my attention was brought to an article Warren wrote decades ago entitled “The Security I Like Best”, in which he named GEICO as the security he most liked. A gentleman named Lorimar Davidson had given him an education on the insurance business and, more specifically, GEICO. Warren later was a stockbroker and made sales calls telling potential clients the business virtues that GEICO represented. His Aunt Alice bought some shares as his supporter, but most importantly, Warren bought shares; after a few lane changes and years, Warren bought the company.

I think it is relevant today to realize that Berkshire's most important business is insurance and GEICO, headed by Tony Nicely, is a huge part of Berkshire's insurance operation. More importantly, GEICO is still a strong economic castle.

GEICO today, just as decades ago, provides a product that is mandated by law - essentially people have to buy car insurance. GEICO’s competitive advantage is that they are the low cost producer of car insurance which people have to have; there is a Wal-Mart (NYSE:WMT) phenomenon here - you have to buy car insurance so buy it from GEICO and you will pay less, have more and live better. Today I can add that due to massive checkwriting in advertising (we all know the gecco), GEICO also has a tremendous brand. This is a winning cycle; they grow revenues by providing customers with lower cost insurance which gives them more money to advertise even more.

Tony is an amazing manager, as acknowledged repeatedly by Warren himself. Tony does not squander money; he simply builds his castle, widens its moats and keeps costs down. On offense he either lowers rates or advertises more to build business and increase float, or I guess he sends money to Warren to buy other wonderful businesses.

I should also say that at GEICO, the float is managed by Lou Simpson who is an intelligent investor. So there is an ace on the asset management side of the company as well. Lou averaged 23% returns between 1980 and 1995. The S&P averaged 16%.

Finally, GEICO has one of the best reputations on claims: simply stated, they are aapparently a pleasure to deal with and consistently get high ratings as such.

If you don’t know yet, the securtiy I like best is Berkshire Hathaway and one of the reasons is the fine people at GEICO.

Disclosure: Author holds a long position in Berkshire