Lou Simpson, former chief investment officer for Geico – a Berkshire Hathaway subsidiary is one of the investing legends. Beating S&500 by 6.8% p.a. for a period over 25 years is hell of a record, translating to return of 5x @ end of 25 years!! Hence, important lessons to learn from the legendary investor!!
Independence:
Think independently. We try to be skeptical of conventional wisdom and try to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street.
Temperament:
A lot of people don’t have the patience or temperament to really be investors.
The stock market is like the weather in that if you don’t like the current conditions all you have to do is wait awhile.
Diversification:
- Most investors should own no more than 10 to 20 stocks. 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. Do not diversify excessively.
- Good investment ideas are difficult to find. When we think we have found one, we make a large commitment.
- … 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.
Evaluating Management:
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?
Other Pearls of Wisdom:
- Sometimes the best thing to do is nothing. The hardest thing to do is sit with cash. It is very boring.
- The essence [of my investment philosophy] is simplicity
- Of course, things can change. Amazon is changing the retail business quite dramatically.
- 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.
- It is very important to look at your mistakes and determine why you made them. When we make mistakes, we always try to do postmortems.
- We don’t ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.
What’s the relationship between Maruti & Mattel Toys?
If you look around, Barbie dolls which were priced low to begin with captured the heart of every girl when they were growing up. Gradually, as the girl became a mother, she ensured that her daughter got a better version of the doll with more frills and fancier clothes – she kept upgrading to a better version of the doll, thereby resulting in greater margins to Mattel on a go-forward basis!!
Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014. All investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.