Tenets of Lou Simpson

Lou Simpson's principles as written in his brochure submitted to the SEC and listed in the book Concentrated Investing:

• Think independently

• Invest in-high return businesses run for the shareholders

• Pay only a reasonable price, even for excellent businesses

• Invest for the long-term

• Do not diversify excessively
• 
  

 These are quotes taken from the Kellogg school of management--

"There are a few factors that we look at. First, is this the business we thought it was? If you figure out that a business is not what you thought it was, that’s a bad sign."

The second factor is the management, which can also differ from what you thought. Unfortunately, a lot of managements are very short-term oriented, and that can be another reason to sell. This goes back to the basic integrity and the focus of people in charge.

The third factor is an overly high valuation, and this is often the most difficult, because you’re investing in something you wouldn’t buy at current prices, but you don’t want to sell because it’s a really good business and you think it’s ahead of itself on a price basis. It might be worth holding on to it for a while."

"I think you need a combination of quantitative and qualitative skills. Most people now have the quantitative skills. The qualitative skills develop over time."

"Everyone talks about modelling—and it’s probably helpful to do modelling—but if you can be approximately right, you will do well."

"One thing you need to determine is: Are the company’s leaders honest? Do they have integrity? Do they have huge turnover? Do they treat their people poorly? Does the CEO believe in running the business for the long term, or is he or she focused on the next quarter’s consensus earnings?"

"The essence [of my investment philosophy] is simplicity"

"What we do is run a long-time-horizon portfolio comprised of ten to fifteen stocks. Most of them are U.S.-based, and they all have similar characteristics. Basically, they’re good businesses. They have a high return on capital, consistently good returns, and they’re run by leaders who want to create long-term value for shareholders while also treating their stakeholders right."

"You can only know so many companies. If you're managing 50 or 100 positions, the chances that you can add value are much, much lower.

"... be very careful with each decision you make. The more decisions you make, the higher the chances are that you will make a poor decision."

"One thing a lot of investors do is they cut their flowers and water their weeds. They sell their winners and keep their losers, hoping the losers will come back even. Generally, it’s more effective to cut your weeds and water your flowers. Sell the things that didn't work out, and let the things that are working out run."

"If I’ve made one mistake in the course of managing investments it was selling really good companies too soon. Because generally, if you’ve made good investments, they will last for a long time."

"Of course, things can change. Amazon is changing the retail business quite dramatically."

"The biggest difference between Warren and me is that Warren had a much harder job. He was managing 20 times the amount of money we were."

"If somebody’s going to invest using hot tips, or listening to CNBC, or investing with so-called wealth managers at brokerage firms, I think it’s a loser’s game for them."