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

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Geoff Gannon
Aug 24, 2010
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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, Financial)

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, Financial)

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, Financial)

26.86%

Nike (NKE, Financial)

12.41%

Wells Fargo (WFC)

17.45%

Wells Fargo (WFC)

12.34%

American Express (AXP, Financial)

14.72%

Moody's (MCO)

7.78%

Procter & Gamble (PG, Financial)

11.32%

Republic Services (RSG, Financial)

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.










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