Amazing how habits are hard to eradicate. Lou Simpson, a master stock picker who worked for decades with Buffett managing the Geico investment portfolio quit Berkshire last year (at 73 years old). His initial idea was to retire, and he did, for a day or two, he thought his wife (and him) would go crazy if he stopped investing. Therefore he opened his own investment fund: Lou Simpson – SQ Advisors. The company, SQ Advisors LLC, manages money for Simpson’s family and friends, as well as outside charities. I do not think that Warren Buffett was very happy about him leaving. Buffett liquidated his portfolio soon after and hired Todd and Ted to manage an amount similar to what Simpson did.
Once identified by Buffett as a potential head of Berkshire’s investments in an emergency, Simpson retired after more than 31 years of selecting equities for its Geico Corp. auto-insurance subsidiary. Buffett, in Berkshire’s annual letter to shareholders for 2004, devoted a section to Simpson titled “Portrait of a Disciplined Investor,” saying his picks had produced an annual average return of 20 percent since 1980, compared with 14 percent for the Standard & Poor’s 500 Index. As a friend just remarked: “With 24 years of 20% returns in average you turn $1,000 into $125,000″, you duplicate every 3 1/2 years”. Actually he was managing it for even more time than that.
“He just knocked the cover off the ball year after year after year,” said Jack Byrne, the former chairman of Geico who hired Simpson with input from Buffett in 1979. “I have been asking Lou for 20 years whether he would take a separate account with me.”
“I did retire for a day,” Simpson said during an interview. He then realized, “I would probably drive myself crazy and my wife crazy if I really retired and didn’t do anything.”
As CEO of Geico’s capital operations, Simpson received a portion of the insurer’s stock returns that exceeded the average for the S&P 500 over rolling three-year periods, according to Byrne. Buffett alluded to the compensation arrangement in his 2006 Berkshire shareholder letter.
“Under this deal, he has earned large amounts,” Buffett wrote. “Lou, however, could have left us long ago to manage far greater sums on more advantageous terms.”
Simpson first came into contact with Buffett when Byrne, hired to rescue Chevy Chase, Maryland-based Geico from the brink of insolvency, began searching for a new chief investment officer. Byrne said he considered more than 60 candidates before narrowing the field to four. Because Berkshire was a large Geico shareholder, Byrne asked the four to meet with Buffett.
Buffett interviewed Simpson for several hours and then called Byrne and said, “Stop the music. That’s the fella,”. When Buffett acquired the remaining two-thirds of Geico in 1996 for about $2.3 billion, he kept Simpson in place.
SQ Advisors charges a 1 percent management fee and no performance fee, according to its SEC registration. Managers historically have taken 2 percent of assets and 20 percent of investment profits for running hedge funds.
You can see at Dataroma what his portfolio is. I’m glad to notice that he has been buying Dell. I just wrote some thoughts about Dell. I would not be surprised if Simpson keeps adding this quarter too, I’ll know soon from the next 13F filling, stay tuned
He was low profile. In a conversation described as only his second interview since Berkshire bought Geico in 1996, Simpson tells the Tribune’s Harris:
“My approach is eclectic. I try to read all company documents carefully. We try to talk to competitors. We try to find people more knowledgeable about the business than we are. We do not rely on Wall Street-generated research. We do our own research. We try to meet with top management.
So many people broadcast what they buy or sell and it works against them. I’m in favor of people not knowing what we’re doing until the last possible time.”
For those who did not know (like me) what eclectic means, here is a definition: “Deriving ideas, style, or taste from a broad and diverse range of sources”. Which indeed makes a lot of sense when you select where to invest.
I’ve followed him for the last five years. His investment record is very high, just check what Warren Buffett says about his performance in his past shareholder letters. I have my serious doubts that Buffet’s new stock pickers, Todd Combs and Ted Weschler, will match him.
“From my review of Lou’s returns, he was actually better than Warren” at picking stocks, said author Robert Miles, who interviewed Simpson in 2000 for his book “The Warren Buffett CEO,” published by John Wiley & Sons Inc. in 2003. “Lou invested outside the U.S. and he invested in technology and he invested in a lot of companies that were un-Buffettesque.”
Sources from: http://www.dataroma.com/, http://www.bloomberg.com/news/2011-01-21/buffett-stock-picker-simpson-opens-florida-firm-after-retiring-from-geico.html and Berkshire’s Shareholder Letters