The world’s greatest investors: Louis Simpson

Louis Simpson looks for shares that combine growth with value, and operates a disciplined, low turnover approach to portfolio management


How did he start out?

Louis Simpson was born in Chicago in 1936. After graduating with a degree in economics from Ohio Wesleyan University, and then a masters from Princeton, he worked for various financial institutions. In 1977 he became the president and chief executive of Western Asset Management Company before becoming the chief investment officer of Geico. In 2010 he retired from Geico to set up his own SQ Advisors, which controls more than $1bn of assets.

What was his strategy?

Simpson is like Warren Buffett, in that he looks for shares that combine growth with value. Indeed, a recent comparison of SQ Advisors with Bershire Hathaway shows that both funds invest in some of the same firms. However, Geico's relatively smaller size has given Simpson a lot more freedom to invest in smaller companies. Simpson emphasises that he likes to carry out detailed research on a company, including careful scrutiny of company documents and meetings with the management. He also believes in holding shares for long periods of time and avoiding owning too many different firms.

Did this work?

Simpson came to prominence when Buffett mentioned his record in Berkshire Hathaway's 2004 shareholder letter. It detailed that, from 1980-2004, the shares managed by Simpson had earned an average of 20.3%, compared with 13.5% for the market as a whole. This wasn't due to a few good years: over the entire period, Simpson's portfolio had only underperformed the market six times and only lost money in three.

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What was his best investment?

Simpson is most fond of shoe company Nike, which he bought in the early 1990s and then held throughout his career. Simpson believed that growth in the Asian market presented a huge opportunity for the company, and his optimism was rewarded as it grew tenfold between 1993 and 2010, at one point increasing to 16% of Geico's portfolio.

What lessons does he have for investors?

Simpson believes in "growth at a reasonable price". His results also show the benefits that can be gained from a disciplined, low turnover approach to portfolio management. Despite the huge sums of money that he managed, Simpson ran his investments from a small office, with a tiny staff and pointedly ignored Wall Street research. This shows the benefits of doing your own work, rather than following the crowd, something that is easier for private investors than for professionals.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri