Lou Simpson Quotes

102 Lou Simpson Quotes

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I was a misfit in engineering.
Lou Simpson

If we could find 15 positions that we really had confidence in, we’d be in 15 positions. We’ll never be in 100 positions because we’re never going to know 100 companies that well. I think the merits of a concentrated portfolio are: ‘You live by the sword, you die by the sword.’ If you’re right, you’re going to add value. If you’re going to add value, you’re going to have to look different than the market. That means either being concentrated, or, if you’re not concentrated in a number of issues, you’re concentrated in types of businesses or industries.
Lou Simpson

By managing the portfolio, I was able to add value at GEICO by creating the returns, which enabled us to buy in more of our own stock. And that created more value on a per-share basis.
Lou Simpson

[On how his own investment approach developed.] Trial and error.
Lou Simpson

One of the things I have learned over the years, is how important management is in building or subtracting from value. We will try to see a senior person, and prefer to visit the company at their office, almost like kicking the tires. You can have all the written information in the world, but I think it is important to figure out how senior people in the company think.
Lou Simpson

We try to be skeptical of conventional wisdom, and try to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street.
Lou Simpson

We don’t ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.
Lou Simpson

Over the long run, appreciation in share prices is most directly related to the return the company earns on its shareholders’ investment. Cash flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick.
Lou Simpson

We ask the following question in evaluating management: Does management have a substantial stake in the stock of the company? Is management straightforward in dealings with the owners? Is management willing to divest unprofitable operations? Does management use excess cash to repurchase shares? The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources.
Lou Simpson

We try to be disciplined in the price we pay for ownership even in a demonstrably superior business.
Lou Simpson



The ratio of price to earnings and its inverse, the earnings yield, are useful gauges in valuing a company, as the ratio of price to free cash flow. A helpful comparison is the earnings yield of a company versus the return on a risk-free long-term United States Government obligation.
Lou Simpson

Attempting to short-term swings in individual stocks, the stock market, or the economy, is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long term. Furthermore, moving in and out of stocks frequently has two major disadvantages that will substantially diminish results: transaction costs and taxes. Capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.
Lou Simpson

An investor is not likely to obtain superior results by buying a broad cross-section of the market. The more diversification, the more performance is likely to be average, at best.
Lou Simpson

We concentrate our holdings in a few companies that meet our investment criteria. Good investment ideas – that is, companies that meet our criteria – are difficult to find. When we think we have found one, we make a large commitment. The five largest holdings at GEICO account for more than 50 percent of the stock portfolio.
Lou Simpson

[On Warren Buffett] He’s a great guy. I doubt there will ever be another Warren. The best thing about working with him is that he is ultimately totally fair and totally rational. He gives you a lot of rope, and if you do well, he’ll applaud. But he also understands if you don’t do so well, and he has a long horizon.
Lou Simpson

[On Warren Buffett’s investing style.] I think, in terms of basic values and similarities, our investment approach is pretty similar.
Lou Simpson

[On Warren Buffett] Warren is a unique person who is off the charts as far as intelligence is concerned. He is focused on Berkshire, his life is his work, and he loves what he does. I love what I do too, but I probably don’t have the same dedication that he has. I’m able to get away and not think about the market for a week or two. I’m not sure Warren ever does that.
Lou Simpson

I talk to Warren [Buffett] once a week, or once every 10 days. But sometimes I’ll talk to him two or three days in a row, and we generally always talk about stocks and companies.
Lou Simpson

[At GEICO] I don’t really have a lot of day-to-day responsibilities other than the portfolio. Four times a year, I participate in internal GEICO board meetings, usually by phone, and twice a year I fly to the company’s headquarters in Washington, D.C., for meetings. I do, though, talk regularly to Tony Nicely, who runs GEICO’s operations, as well as other people in Washington.
Lou Simpson

[On insurance in 2001.] I think the necessity of generating an underwriting profit short term is less important. The ability to grow where it makes sense to grow is more important.
Lou Simpson



I’m really glad I landed in investment management. It’s very challenging intellectually, and it’s also very practical and bottom-line.
Lou Simpson

[On what career he may have pursued if it was not investment management.] It would have probably been in general management. I would have been a general manager of a non-high-tech business. Not so much because of its bottom-line nature, but more because I enjoy the whole process of being part of top management, running a business, and building value. Although I have a specialty – that’s been my role at GEICO – I sort of consider myself a general manager with an expertise in investments and finances.
Lou Simpson

[On getting his excitement comes not from his remuneration but] In really understanding businesses. I get excited when we get some insights on a business that’s not really well understood.
Lou Simpson

[On his ideal day.] Would be a day when I’m here in my office, the market is closed, there are no telephone calls, and I can read all day.
Lou Simpson

I’d say I try to read at least five to eight hours a day. I read a lot of different things, including a wide variety of filings, annual reports, industry reports, and business magazines.
Lou Simpson

[On business publications such as the Wall Street Journal, Fortune, Business Week, Forbes and Barron’s.] You can get good [investment] ideas from any of them. But, you also can get a lot of noise.
Lou Simpson

During annual report season, I probably read 15 or 20 a day. I generally read the Chairman’s letter to get a flavor of the culture, then I got to the Sources and Uses of Funds, and I read some footnotes. But it’s the CEO’s letter that sets the tone.
Lou Simpson

[On the Berkshire Hathaway annual report.] Berkshire’s is personal in some ways. Berkshire is Warren, and Warren is the star of the company.
Lou Simpson

Even if Warren is personal, he does deal with substantial issues. There are a lot of CEOs’ letters where you really don’t have much of a clue what’s happening in the business. It’s all PR, marketing, and smoke.
Lou Simpson

[In 1993 on the company’s relatively poor performance in the early 1990s with a straight shooter approach.] There are two obvious reasons for the lessened performance. First, we have not been as successful in identifying good investment ideas, and second, the stock market’s appreciation has been lower than in the 1980s.
Lou Simpson



[In 2001 on what he considers as his greatest fault as an investor.] Lack of understanding of technology, because certain technology is crucial to the economy of the world.
Lou Simpson

[In 2001 on the technology area.] I kind of block that area out.
Lou Simpson

I think that dealing in a circle of competence, dealing with companies that you have the ability to understand, being able to come up with a good analysis of a company’s value and earning power, is fundamental.
Lou Simpson

[In 2001] I don’t understand AOL’s valuation. I understand AOL’s business – I think it’s extremely well run in terms of building value, but I don’t understand the valuation versus the business prospects. Maybe I don’t understand the business. In fact, I’m sure I don’t.
Lou Simpson

[On taking risks that have resulted in failures.] We have made very concentrated bets in the past, and I think those have been our greatest risks. In some of those cases it’s worked out great, but in others it hasn’t worked out very well. We’ve also made some inaccurate assessments of people, particularly management and owners.
Lou Simpson

We’re trying to get more competent. It’s really a combination of understanding businesses and understanding people. We’ve probably done a better job of understanding businesses, but we’re still learning about both of them. And, when we make mistakes, we always try to do postmortems. I think it is very important to look at your mistakes and determine why you made them.
Lou Simpson

[On one mistake of having listened to some inside information on a company in which he had an ownership.] This in effect froze our position since we became an insider. And we lost some money, and we couldn’t either buy or sell because we had the information. We’ll never do that again. We don’t want any insider information. We want to be as flexible as we can be.
Lou Simpson

[When asked about his greatest strength] If we have any strength, it’s really in understanding businesses and, hopefully, management. To be able to get the conviction, assuming that you’re buying a business at a fair price, maybe a cheap price to go in and take very concentrated bets. On balance, it’s worked out pretty well, although sometimes it hasn’t.
Lou Simpson

[On what is the most important quantitative aspects of evaluating companies.] Return on capital. That really tells you a lot. One of the basic problems is that there is so much noise around earnings that you really have to rip apart the financials to understand what the real numbers are. It’s really the basic returns on equity capital [that are] important, but sometimes they’re not obvious. Even so, I think you have to look at a lot of things.
Lou Simpson

You have to figure out what the earnings growth rate of the company will be over an extended period of time, and then apply a discount rate to it so you can come up with the best valuation. It’s easy in principle but it’s extremely difficult in practice.
Lou Simpson



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