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How Does Lou Simpson's Stock Portfolio Compare to Warren Buffett's Stock Portfolio?

Geoff Gannon

Geoff Gannon

407 followers
Lou Simpson is the only person at Berkshire Hathaway (BRK.B) other than Warren Buffett who buys and sells stocks. Buffett makes all investment decisions for Berkshire’s insurance companies with the exception of GEICO. Lou Simpson runs GEICO’s stock portfolio. Simpson, 73, will retire in December. Buffett, 79, will take over GEICO’s portfolio. Until then, the two stock portfolios are kept separate. Media reports confuse which man bought which stocks. As I explained in yesterday’s article, there’s no reason to make that mistake. Berkshire’s 13F report to the SEC shows which investments are GEICO’s and which investments are not.

Today, in part two of my ongoing series on Lou Simpson, we’re going to compare Lou Simpson’s stock portfolio with Warren Buffett’s stock portfolio.

How Does Lou Simpson’s Portfolio Compare to Warren Buffett’s Portfolio?

See for yourself…

Warren Buffett's Portfolio Lou Simpson's Portfolio
Coca Cola (KO) 26.86% Nike (NKE) 12.41%
Wells Fargo (WFC) 17.45% Wells Fargo (WFC) 12.34%
American Express (AXP) 14.72% Moody's (MCO) 7.78%
Procter & Gamble (PG) 11.32% Republic Services (RSG) 7.53%
Kraft (KFT) 7.41% ConocoPhillips (COP) 7.37%
Johnson & Johnson (JNJ) 5.23% Johnson & Johnson (JNJ) 6.09%
Wal-Mart (WMT) 4.71% Fiserv (FISV) 5.14%
US Bancorp (USB) 3.47% Comcast (CMCSA) 4.87%
ConocoPhillips (COP) 3.00% Nalco (NLC) 4.80%
Washington Post (WPO) 1.54% Ingersoll-Rand (IR) 4.01%
M&T Bank (MTB) 1.03% IronMountain (IRM) 3.94%
Moody's (MCO) 0.78% Nestle (NSRGY) 3.89%
Costco (COST) 0.57% Carmax (KMX) 3.80%
USG (USG) 0.49% Lowe's (LOW) 3.06%
Torchmark (TMK) 0.34% Becton Dickinson (BDX) 3.05%
General Electric (GE) 0.28% NRG (NRG) 2.84%
Sanofi Aventis (SNY) 0.25% Home Depot (HD) 1.77%
United Parcel Service (UPS) 0.23% Bank of America (BAC) 1.47%
GlaxoSmithKline (GSK) 0.14% US Bancorp (USB) 1.33%
Exxon Mobil (XOM) 0.06% M&T Bank (MTB) 1.12%
Ingersoll-Rand (IR) 0.05% Wal-Mart (WMT) 1.08%
Gannett (GCI) 0.05% Sanofi Aventis (SNY) 0.32%
Comdisco (CDCO) 0.03%


How Concentrated a Portfolio Does Lou Simpson Run?

Lou Simpson runs a more concentrated portfolio than most investors. GEICO probably owns less than 25 stocks. There are 22 stocks owned by GEICO listed in Berkshire’s 13F. We know Simpson owns Tesco. However, GEICO’s Tesco shares are not listed in Berkshire’s SEC report. That’s because Tesco is a foreign stock. The 13F only lists U.S. stocks. Note I say “foreign stock” and not “foreign company”. U.S. shares of foreign companies (ADRs) are listed in the 13F. So, we probably aren’t missing much here.

Also, a recent Chicago Tribune article said Simpson manages a $4 billion portfolio. The 22 positions listed above have a market value of just under $4.4 billion. So, unless the Chicago Tribune article is way off, it’s unlikely Simpson has many foreign investments. Therefore, the percentage allocations to each stock shown above are close to what Simpson sees when he looks at GEICO’s portfolio.

Simpson diversifies much less than most investors. However, Simpson doesn’t diversify less than his boss, Warren Buffett.

Here is a statistical comparison of the position sizes Warren Buffett and Lou Simpson use to build their portfolios:

Buffett Simpson
0.03% Minimum 0.32%
26.86% Maximum 12.41%
0.78% Median 3.91%
4.35% Arithmetic Mean 4.55%
0.93% Geometric Mean 3.37%
0.20% Harmonic Mean 2.14%
6.81% STDEV 3.24%
1.57 CV 0.71


What do those numbers mean? Basically, they’re all saying the same thing. Yes, Warren Buffett’s portfolio is less evenly spread than Lou Simpson’s portfolio. That’s obvious. But if you look at the rapid descent in Buffett’s arithmetic, geometric, and harmonic mean, and compare that to the gentle descent in Simpson’s means, you’ll see statistics telling you something the naked eye can see right away. Buffett focuses on just a few stocks. There is no such thing as an “average” size position for Warren Buffett. He groups stocks into two categories: those he wants to own a ton of, and those he just hangs on to. Most of Buffett’s positions are not meaningful relative to his top positions. Buffett’s portfolio is not homogenous. There is a very special population – a handful of stocks – that make up most of Buffett’s portfolio. Everything else is just a pebble on the scales.

Even though Buffett owns close to 25 stocks, his median position size is just 0.78%. That means most of Buffett’s positions are tiny. And a handful of Buffett’s stocks soak up the majority of his portfolio’s capital. Simpson’s median position size is 3.91%. That means Simpson’s capital is more evenly spread across all 22 of his stocks.

The easiest way to see the difference between Warren Buffett’s extreme portfolio concentration and Lou Simpson’s more balanced approach is to look at each man’s top positions. What percentage of each man’s portfolio do these top stocks take up?

Buffett Simpson
44.30% Top 2 Stocks 24.75%
77.75% Top 5 Stocks 47.43%
95.69% Top 10 Stocks 72.34%


More than half of Simpson’s portfolio is in his 17 smallest positions. Buffett puts less than a quarter of his portfolio into everything beyond his top five stocks: Coca Cola, Wells Fargo, American Express, Procter & Gamble, and Kraft.

There’s really no point in looking at any of Buffett’s stocks beyond his tenth largest holding (Washington Post: 1.54%), because all the stocks aside from his top ten positions account for well under 10% of Buffett’s portfolio. Whether those stocks do terrifically well or terrifically badly won’t have nearly as much influence on Berkshire’s future as how Coke, Wells, Amex, P&G, and Kraft do.

Simpson takes a more balanced approach. But that’s only compared to Buffett. Compared to most investors, Simpson diversifies less. He owns fewer stocks than most money managers. And he bets big on the stocks he does own. But when compared to a super concentrated investor like Warren Buffett, even a focused investor like Lou Simpson looks diversified.

What Stocks Do Both Lou Simpson And Warren Buffett Own?

Once again, here are Lou Simpson’s portfolio and Warren Buffett’s portfolio side-by-side. This time, the stocks they both own are highlighted.

Warren Buffett's Portfolio Lou Simpson's Portfolio
Coca Cola (KO) 26.86% Nike (NKE) 12.41%
Wells Fargo (WFC) 17.45% Wells Fargo (WFC) 12.34%
American Express (AXP) 14.72% Moody's (MCO) 7.78%
Procter & Gamble (PG) 11.32% Republic Services (RSG) 7.53%
Kraft (KFT) 7.41% ConocoPhillips (COP) 7.37%
Johnson & Johnson (JNJ) 5.23% Johnson & Johnson (JNJ) 6.09%
Wal-Mart (WMT) 4.71% Fiserv (FISV) 5.14%
US Bancorp (USB) 3.47% Comcast (CMCSA) 4.87%
ConocoPhillips (COP) 3.00% Nalco (NLC) 4.80%
Washington Post (WPO) 1.54% Ingersoll-Rand (IR) 4.01%
M&T Bank (MTB) 1.03% Iron Mountain (IRM) 3.94%
Moody's (MCO) 0.78% Nestle (NSRGY) 3.89%
Costco (COST) 0.57% Carmax (KMX) 3.80%
USG (USG) 0.49% Lowe's (LOW) 3.06%
Torchmark (TMK) 0.34% Becton Dickinson (BDX) 3.05%
General Electric (GE) 0.28% NRG (NRG) 2.84%
Sanofi Aventis (SNY) 0.25% Home Depot (HD) 1.77%
United Parcel Service (UPS) 0.23% Bank of America (BAC) 1.47%
GlaxoSmithKline (GSK) 0.14% US Bancorp (USB) 1.33%
Exxon Mobil (XOM) 0.06% M&T Bank (MTB) 1.12%
Ingersoll-Rand (IR) 0.05% Wal-Mart (WMT) 1.08%
Gannett (GCI) 0.05% Sanofi Aventis (SNY) 0.32%
Comdisco (CDCO) 0.03%


It’s an interesting group. Part of what’s interesting about it is the different weights. All of Simpson’s smallest positions: US Bancorp, M&T Bank, Wal-Mart, and Sanofi Aventis are also owned by Buffett. However, Buffett owns much more of these stocks.

Three stocks are big positions for both men: Wells Fargo, Johnson & Johnson, and ConocoPhillips. Wells Fargo is the second largest position for both Buffett and Simpson. They’ve each put a double-digit percentage of their portfolio into Wells.

It’s also worth looking at which stocks are a big holding for Simpson, but don’t appear at all in Buffett’s portfolio. The most notable one is Nike. It’s Simpson’s biggest position. But Buffett doesn’t own any Nike shares. Why not?

In the Chicago Tribune article, Buffett seemed to say that Nike is a Simpson investment rather than a Buffett investment, because it’s too small. If that’s true, Buffett must have meant the size of Berkshire’s investment in Nike is too small, not the size of Nike itself. Nike is plenty big enough for Berkshire to put a lot of cash to work there. Buffett has bought stock in much smaller companies. In theory, Buffett could put $1 to $3 billion to work in Nike without buying a bigger chunk of the overall company than he usually does.

So, it’s not the size of Nike that lead Simpson to buy it and Buffett to ignore it. There has to be some difference in analysis, or taste, or investment philosophy, that explains why Simpson bought Nike and Buffett didn’t.

The reason Simpson hasn’t bought some of Buffett’s big investments is easier to explain. Many of Buffett’s biggest investments were bought long ago. And in some cases, like Coca Cola, Buffett bought the entire position – or most of it – pretty quickly. So, unless Simpson was buying at the exact same moment Buffett was, it’s unlikely Simpson would duplicate his boss’s investments. That’s especially true because Simpson might be reluctant to increase Berkshire’s ownership stake in a company he knew Buffett could buy more of himself.

However, that concern didn’t hold Simpson back before. Based on the overlapping positions and the quotes from both Simpson and Buffett, it seems Simpson really does run his own show over at GEICO. According to Buffett, Simpson doesn’t tell him which stocks he’s buying for GEICO’s portfolio until he’s already started buying.

A side-by-side comparison of the two portfolios supports the claim that Simpson is independent. There doesn’t seem to be coordinated overlap between the portfolios. But there isn’t zero overlap either. That means any overlap between Simpson’s portfolio and Buffett’s portfolio is likely due to similar minds thinking similar thoughts rather than any guidelines coming from Omaha.

Where Can You Find Lou Simpson’s Portfolio and Warren Buffett’s Portfolio?

I can’t show you their complete portfolios. Unfortunately, the 13F doesn’t include everything. For Simpson, the 13F includes the vast majority of GEICO’s stock portfolio. So, the picture we get of Simpson’s portfolio is clear and accurate. Remember, Simpson also owns Tesco. But that’s about it.

Buffett’s portfolio is a little trickier. We know Buffett also owns Tesco, Posco, BYD, and convertible preferred stock in General Electric and Goldman Sachs.

In a future article, I’ll present my best estimate of what Buffett’s portfolio looks like when you include those foreign and unconventional investments.

For now, I’ll leave you with the best picture we have of Lou Simpson’s portfolio and Warren Buffett’s portfolio. It comes from Berkshire’s most recent 13F. The really independent researchers out there will want to read Berkshire’s 13F and do the math for themselves.

For the rest of you, here’s the most complete breakdown I can give you of Lou Simpson’s stock portfolio and Warren Buffett’s stock portfolio.

Lou Simpson’s Stock Portfolio

Company # of Shares Ticker Last Price Market Value
Nike 7,641,000 NKE $71.26 $544,497,660
Wells Fargo 22,000,000 WFC $24.60 $541,200,000
Moody's 15,719,400 MCO $21.71 $341,268,174
Republic Services 10,827,700 RSG $30.51 $330,353,127
ConocoPhillips 6,000,000 COP $53.89 $323,340,000
Johnson & Johnson 4,548,000 JNJ $58.74 $267,149,520
Fiserv 4,400,000 FISV $51.26 $225,544,000
Comcast 12,000,000 CMCSA $17.81 $213,720,000
Nalco 9,150,000 NLC $23.01 $210,541,500
Ingersoll-Rand 5,000,000 IR $35.22 $176,100,000
Iron Mountain 8,000,000 IRM $21.58 $172,640,000
Nestle 3,400,000 NSRGY $50.24 $170,816,000
Carmax 7,725,900 KMX $21.56 $166,570,404
Lowe's 6,500,000 LOW $20.64 $134,160,000
Becton Dickinson 1,889,889 BDX $70.82 $133,841,939
NRG 6,000,000 NRG $20.73 $124,380,000
Home Depot 2,757,898 HD $28.17 $77,689,987
Bank of America 5,000,000 BAC $12.87 $64,350,000
US Bancorp 2,679,000 USB $21.74 $58,241,460
M&T Bank 546,000 MTB $89.76 $49,008,960
Wal-Mart 946,000 WMT $50.22 $47,508,120
Sanofi-Aventis 488,500 SNY $28.79 $14,063,915


Warren Buffett’s Stock Portfolio

Company # of Shares Ticker Last Price Market Value
Coca Cola 200,000,000 KO $55.60 $11,120,000,000
Wells Fargo 298,088,385 WFC $24.23 $7,222,681,569
American Express 151,610,700 AXP $40.20 $6,094,750,140
Procter & Gamble 78,071,036 PG $60.03 $4,686,604,291
Kraft 105,214,584 KFT $29.15 $3,067,005,124
Johnson & Johnson 36,771,563 JNJ $58.87 $2,164,741,914
Wal-Mart 38,091,142 WMT $51.14 $1,947,981,002
US Bancorp 66,360,126 USB $21.63 $1,435,369,525
ConocoPhillips 23,109,637 COP $53.71 $1,241,218,603
Washington Post 1,727,765 WPO $368.78 $637,165,177
M&T Bank 4,817,821 MTB $88.78 $427,726,148
Moody's 15,064,476 MCO $21.50 $323,886,234
Costco 4,333,363 COST $54.90 $237,901,629
USG 17,072,192 USG $11.88 $202,817,641
Torchmark 2,823,879 TMK $49.61 $140,092,637
General Electric 7,777,900 GE $14.89 $115,812,931
Sanofi Aventis 3,575,175 SNY $28.99 $103,644,323
United Parcel Service 1,429,000 UPS $65.22 $93,199,380
GlaxoSmithKline 1,510,500 GSK $38.01 $57,414,105
Exxon Mobil 421,800 XOM $59.50 $25,097,100
Ingersoll-Rand 636,000 IR $34.71 $22,075,560
Gannett 1,740,231 GCI $12.19 $21,213,416
Comdisco 1,538,377 CDCO $8.79 $13,522,334


This is the second article in Geoff Gannon’s ongoing series on Lou Simpson. For more information on how to separate Lou Simpson’s stock portfolio from Warren Buffett’s stock portfolio read “What Stocks Does Lou Simpson Own? And What Stocks Does Warren Buffett Own?”

Come back tomorrow for another new article on Lou Simpson. Until then, you can always follow Geoff on Twitter.



About the author:

Geoff Gannon
Geoff Gannon


Rating: 4.7/5 (29 votes)

Comments

batbeer2
Batbeer2 premium member - 3 years ago
Thanks for the article.

As an asside.... Buffett, unlike Simpson, also has 100% positions.

BNI to name one.
greine12
Greine12 - 3 years ago
Where do did you find data pertaining to the variations pertaining to Lou Simpson's selections versus Warren's? I believe that Lou was also responsible for many of the health care positions that were placed by Berkshire; however, I have not yet been able to back up this position. Any help is greatly appreciated. Great article.

Geoff Gannon
Geoff Gannon - 3 years ago
Sorry I forgot to add the link to Berkshire's 13F when I mentioned it. For more info on how I separated Lou Simpson's investments from Warren Buffett's, see my earlier article: "What Stocks Does Lou Simpson Own? And What Stocks Does Warren Buffett Own?"

Basically, the logic is as follows: we know only Warren Buffett and Lou Simpson buy and sell stocks at Berkshire. And we know that Lou Simpson only buys and sells stock for GEICO. We also know that Buffett does not interfere with GEICO's portfolio. Therefore, if we just find everything Berkshire owns that is held inside GEICO, we can separate Simpson's buys and sells from Buffett's buys and sells.

Column 7 of the Berkshire Hathaway's 13F lists which managers are reporting for each stock. Actually, it reports for each "line", since sometimes the same stock is owned by different parts of Berkshire. Anyway, you just look for the numbers 9, 10, and 11 in Column 7. Whenever they appear we know the stock is held by GEICO. Any line that doesn't include the number 9, 10, and 11 in Column 7 was bought by Buffett, because Simpson only buys stock for GEICO, and no one but Simpson and Buffett buy stock at Berkshire.

One of the first pages of the 13F lists what each number stands for. Numbers 9, 10, and 11 are always listed together, because 10 and 11 stand for GEICO and 9 stands for Simpson's management unit that is the one buying and selling for GEICO. So 9, 10, and 11 just means GEICO.

Everything else is Buffett. You just have to do the grunt work of adding up the lines for each stock and putting them in a spreadsheet. I did that so you don't have to. But everyone is welcome to try for themselves. If you catch any errors, I'm happy to make corrections.

thinker
Thinker - 3 years ago
The last I heard, Berkshire had about 4 other people who were recently given a portfolio each. The idea was to see how they did. Maybe that trial was cut short. If not, their (presumably small by comparison) holdings would be part of what is reported by Berkshire.

Also, I seem to remember somewhere Buffett saying that the reported holdings by any particular subsidiary (meaning probably Geico) were not necessarily attributable to one particular person. It would be easy for internal purposes for Simpson to be credited with X amount of investment wherever it was purchased. Remember Buffett is very cagey about the subject.
Geoff Gannon
Geoff Gannon - 3 years ago
"The last I heard, Berkshire had about 4 other people who were recently given a portfolio each. The idea was to see how they did. Maybe that trial was cut short."

I never heard if this actually happened. I only heard the idea floated. After that, Buffett said there was no point in having people sitting around at Berkshire. And he seemed to say those people were already managing money somewhere else.

If anyone other than Simpson and Buffett are buying and selling for Berkshire, that would show up in the part I attributed to Buffett, not Simpson. I've yet to see anything definitive supporting the idea that anyone other than Buffett and Simpson make actual buy/sell decisions.

By the way, as a kind commenter in the Berkshire & Fairfax forums pointed out to me, you can easily separate Wesco's holdings too. Charlie Munger is Chairman of Wesco (WSC), a publicly traded subsidiary 80% owned by Berkshire. Wesco mostly duplicates Buffett's top holdings.

If anyone wants to see a more detailed break-down of Berkshire's portfolio into Berkshire HQ, GEICO, and Wesco including what we know about foreign investments and convertible preferred, let me know, and I'll do an article or two on that. Would anyone read that?

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