Have you heard of Lou Simpson? Don’t feel badly if you haven’t.
Apparently, Simpson, who passed away this week at 85, liked it that way as the value investor, once considered an heir to Warren Buffett, didn’t seek the public spotlight.
What he did do as the manager of GEICO’s investment portfolio from 1980 to 2004, was consistently deliver impressive outperformance (see Simpson’s annual returns below).
GEICO was a majority-owned subsidiary of Buffett’s Berkshire Hathaway for most of that time, and became wholly-owned by Berkshire in 1996.
Buffett was so impressed by Simpson’s results, he left him alone to do his thing.
How did Simpson do it? Here are nine secrets to his investing success.
In his 1986 shareholder letter, Buffett said about Simpson:
These are not only terrific figures but, fully as important, they have been achieved in the right way.
Lou has consistently invested in undervalued common stocks that, individually, were unlikely to present him with a permanent loss and that, collectively, were close to risk-free.
The following are a collection of quotes from the handful of interviews Simpson did over the years: Wise Words from Lou Simpson.
- We concentrate our holdings in a few companies that meet our investment criteria. 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 more than 50% of the stock portfolio.
- We are sort of the polar opposites of a lot of investors. We do a lot of thinking and not a lot of acting. A lot of investors do a lot of acting, and not a lot of thinking.
- 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.
- One lesson I have learned is to make fewer decisions. Sometimes the best thing to do is to do nothing. The hardest thing to do is to sit with cash. It is very boring.
- We try to be skeptical of conventional wisdom and try to avoid the waves of irrational behaviour and emotion that periodically engulf Wall Street. We don’t ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.
- One of the things I have learned over the years is how important management is in building or subtracting from value… You can have all the written information in the world, but I think it is important to figure out how senior people in a company think.
- 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.
- We do not have any hard and fast rules on selling. We do not sell that well.
- If I’ve made one mistake in the course of managing investments it was selling really good companies too soon.
Chicago Tribune’s Lou Simpson obituary.
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