Former Geico CIOÂ Lou Simpson (Trades, Portfolio) is well known for having been a trusted manager of the Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) subsidiary, of whom Warren Buffett often sang the praises in his annual shareholder letters. As demonstrated in his fourth-quarter trades, however, Simpson can also have vastly different investment ideas than what can be considered a classic Buffett company.
One clear example of Simpson’s occasional differences from Buffett and Charlie Munger (Trades, Portfolio)’s style is his current investment in Valeant Pharmaceuticals (VRX, Financial), whose troubles dominated headlines toward the end of last year. In the fourth quarter, Simpson purchased an additional 745,631 shares in Valeant, upping his stake by 38%. The average price paid for the shares was $112.18, about half the average price he paid during the previous quarter.
This past November, Munger spoke out against Valeant’s business model of acquiring drugs and hiking prices, saying it was “deeply immoral.” A few months earlier, Munger had compared the pharmaceutical company to ITT Corp. (ITT), which profited in the 1960s by buying companies with low quality earnings and using accounting methods to inflate valuations.
After retiring from Geico in 2010, Simpson opened SQ Advisors LLC, an investment-advisory firm in Florida that manages Simpson’s money, those of family and friends, as well as outside charities. In a portfolio of 12 stocks, Valeant accounts for 9.09% of Simpson’s holdings.
Robert Miles, who spoke with Simpson in 2000 while writing his book “The Warren Buffett (Trades, Portfolio) CEO,” remarked on some of Simpson’s differences with Buffett with Bloomberg.
“Lou invested outside the U.S., and he invested in technology, and he invested in a lot of companies that were un-Buffettesque,” Miles said.
Still, Simpson upped his stake in a few stocks related to Buffett, or those that are also famously in his portfolio. Simpson increased his holding in Berkshire Hathaway (BRK.B, Financial) by almost 3%, purchasing shares for an average of $134.21 per share. Buffett’s company has seen its share price decline 16% over the past year, nearing the famous buyback threshold when price-to-book is at a premium of no more than 20%.
Simpson also increased his stake in Wells Fargo (WFC, Financial) by a little more than 2%, buying shares at an average of $54.32 per share. The stock has declined 14% over the past year and currently trades at just 11.6x earnings. Simpson now holds 6.4 million shares.
The Peter Lynch earnings line is at $61.90, indicating Wells Fargo is undervalued at its current price.
In the third quarter, Wells Fargo had EPS of $1.05, about the same level as the year-ago quarter EPS of $1.02. Annual EPS has increased at a steady pace.
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