Lou Simpson (Investment Philosophy (Invest for long term (Lot of…
Be skeptical of conventional wisdom.
Don't ignore unpopular companies.
Invest in high-return businesses run for shareholders.
Be disciplined about price.
Pay only a reasonable price, even for a excellent business
Invest for long term
Lot of unpredictability in short term investments
Transaction costs & taxes will be high for short term investments.
Capital will grow rapidly with fewer interruptions.
Don't diversify excessively
The more diversification, the more performance is going to be average.
Analyze a lot, perform little actions.
Record of an investor is built on what he doesn't buy along with what he buys.
Does management have significant stake in company?
Is management straightforward in dealings with owners?
Is management willing to divest unprofitable operations?
Does management use excess cash to repurchase shares?
Free Cash Flow
Companies with negative free cash flow chew up owner's equity.
[(Price) / (Free Cash Flow)] on a per share basis
Auto Insurance Company
Low Operation Costs
Minimize Distribution Costs
Cut out on agents and market directly to consumers
Reserving(picking the right policy holders)
Premiums paid in time.
Low risk drivers.
Pricing - Making sure policies are rightly priced.
Due to conservative operating leverage.
Focus on Long Term Investments.
Significant amount of assets in common stocks(upto 30%).
Conservative and Concentrated Investment Style
Hold concentrated portfolios.
Take large positions when there is good risk/reward ratio.
Buying back stock when it is undervalued.
Large fraction of portfolio in common stocks.
Portfolio has very less turnover.
Bottoms-up stock picker
Agnostic to industry/sector diversification.