One would think that it investing cash in equities on behalf of Warren Buffett would be a very stressful job. I mean you are entrusted with cash that could be invested by Buffett himself.
Obviously the bar that you will be judged by is set high.
Lou Simpson, the former portfolio manager for Berkshire (BRK.A, Financial)(BRK.B, Financial) subsidiary Geico accepted that challenge for a few decades and thrived.
Simpson retired from Berkshire Hathaway in 2010 and Buffett had some kind words for his departing employee:
Last summer, Lou Simpson told me he wished to retire. Since Lou was a mere 74 - an age Charlie and I regard as appropriate only for trainees at Berkshire - his call was a surprise. Lou joined GEICO as its investment manager in 1979, and his service to that company has been invaluable. In the 2004 Annual Report, I detailed his record with equities, and I have omitted updates only because his performance made mine look bad. Who needs that?
Lou has never been one to advertise his talents. But I will: Simply put, Lou is one of the investment greats. We will miss him.
In the 2004 Berkshire Hathaway letter to shareholders Buffett gave us a look at Simpson's 24 years of investment performance managing Geico's equity portfolio:
The extract above from the 2004 Berkshire letter shows that Simpson compounded money at an astounding 20.3% per annum.
Most of us would be thrilled with half of that these days.
Upon retiring Simpson did not rest for long as he started his own investment firm, SQ Advisors. This for the first time allows us to examine directly the actual portfolio being managed by Simpson. And I think looking in that portfolio for investment ideas is well worth the time and effort.
As of the fourth-quarter 2012, SQ's portfolio had the following positions:
We see a portfolio that one might expect from someone who invests with the Buffett approach of "concentrated value."
The total $1.204 billion portfolio consists of only 14 positions. The top five positions make up almost half of the portfolio. But while concentrated, the portfolio is spread across companies operating in different industries.
Two positions stand out as ones that I should really consider buying.
The first is Simpson's former employer and his largest holding, Berkshire Hathaway. Not only is Simpson an expert in valuing businesses but he spent the better part of 30 years inside of Berkshire Hathaway, so he has a distinct advantage in valuing this particular business. Berkshire's stock price isn't going to double over the next six months, but combining the fact that it is undervalued now and is also growing at a decent rate will result in more than acceptable returns over the next five years with very little risk.
Hedge Fund manager and long-time Berkshire shareholder Whitney Tilson values Berkshire (below) at $180,000 per "A" share, which is a healthy premium to the current share price and a valuation I feel is reasonable.
The second position of interest to me is Wells Fargo (WFC), which is Simpson's fourth-largest position. The reason that I find it interesting is because not only does Simpson hold Wells Fargo as a top-five position, but so does his former boss Warren Buffett. Both of these men have been watching and studying Wells Fargo for decades and having both of them putting a big percentage of their portfolio in the stock sends quite a message.
Buffett particularly just keeps buying and buying and buying shares of Wells Fargo. From 2008 through the end of 2012 Buffett has taken Berkshire's stake in Wells from 290 million shares to 456 million shares.
All of the shares in Simpson's current portfolio likely merit attention. The man has a 30-year track record of excellence and he has put over a billion dollars in only 13 companies. Berkshire and Wells Fargo just happen to be my two favorites of the bunch.
Obviously the bar that you will be judged by is set high.
Lou Simpson, the former portfolio manager for Berkshire (BRK.A, Financial)(BRK.B, Financial) subsidiary Geico accepted that challenge for a few decades and thrived.
Simpson retired from Berkshire Hathaway in 2010 and Buffett had some kind words for his departing employee:
Last summer, Lou Simpson told me he wished to retire. Since Lou was a mere 74 - an age Charlie and I regard as appropriate only for trainees at Berkshire - his call was a surprise. Lou joined GEICO as its investment manager in 1979, and his service to that company has been invaluable. In the 2004 Annual Report, I detailed his record with equities, and I have omitted updates only because his performance made mine look bad. Who needs that?
Lou has never been one to advertise his talents. But I will: Simply put, Lou is one of the investment greats. We will miss him.
In the 2004 Berkshire Hathaway letter to shareholders Buffett gave us a look at Simpson's 24 years of investment performance managing Geico's equity portfolio:
The extract above from the 2004 Berkshire letter shows that Simpson compounded money at an astounding 20.3% per annum.
Most of us would be thrilled with half of that these days.
Upon retiring Simpson did not rest for long as he started his own investment firm, SQ Advisors. This for the first time allows us to examine directly the actual portfolio being managed by Simpson. And I think looking in that portfolio for investment ideas is well worth the time and effort.
As of the fourth-quarter 2012, SQ's portfolio had the following positions:
| # | Company | Ticker | Holding Value | Weighting |
| 1 | Berkshire Hathaway | (BRK.A) | $129,649 | 10.77% |
| 2 | TE Connectivity | (TEL) | $117,578 | 9.76% |
| 3 | Oracle | (ORCL) | $102,180 | 8.48% |
| 4 | Wells Fargo | (WFC, Financial) | $95,292 | 7.91% |
| 5 | Charles Schwab | (SCHW) | $93,756 | 7.79% |
| 6 | Valeant Pharmaceuticals | (VRX) | $88,720 | 7.37% |
| 7 | Fiserv | (FISV) | $88,618 | 7.36% |
| 8 | DIRECTV | (DTV) | $87,146 | 7.24% |
| 9 | Lowes | (LOW) | $85,241 | 7.08% |
| 10 | Crown Holdings | (CCK) | $79,498 | 6.60% |
| 11 | Cenovus Energy | (CVE) | $78,114 | 6.49% |
| 12 | Brookfield Asset Mgmt | (BAM) | $73,131 | 6.07% |
| 13 | Moody's | (MCO) | $58,502 | 4.86% |
| 14 | Dell Inc | (DELL) | $26,405 | 2.19% |
| 15 | US Bancorp | (USB) | $447 | 0.04% |
| $1,204,277 | 100.00% |
We see a portfolio that one might expect from someone who invests with the Buffett approach of "concentrated value."
The total $1.204 billion portfolio consists of only 14 positions. The top five positions make up almost half of the portfolio. But while concentrated, the portfolio is spread across companies operating in different industries.
Two positions stand out as ones that I should really consider buying.
The first is Simpson's former employer and his largest holding, Berkshire Hathaway. Not only is Simpson an expert in valuing businesses but he spent the better part of 30 years inside of Berkshire Hathaway, so he has a distinct advantage in valuing this particular business. Berkshire's stock price isn't going to double over the next six months, but combining the fact that it is undervalued now and is also growing at a decent rate will result in more than acceptable returns over the next five years with very little risk.
Hedge Fund manager and long-time Berkshire shareholder Whitney Tilson values Berkshire (below) at $180,000 per "A" share, which is a healthy premium to the current share price and a valuation I feel is reasonable.
The second position of interest to me is Wells Fargo (WFC), which is Simpson's fourth-largest position. The reason that I find it interesting is because not only does Simpson hold Wells Fargo as a top-five position, but so does his former boss Warren Buffett. Both of these men have been watching and studying Wells Fargo for decades and having both of them putting a big percentage of their portfolio in the stock sends quite a message.
Buffett particularly just keeps buying and buying and buying shares of Wells Fargo. From 2008 through the end of 2012 Buffett has taken Berkshire's stake in Wells from 290 million shares to 456 million shares.
All of the shares in Simpson's current portfolio likely merit attention. The man has a 30-year track record of excellence and he has put over a billion dollars in only 13 companies. Berkshire and Wells Fargo just happen to be my two favorites of the bunch.
