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Lou Simpson Opens Own Firm


Parsad
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Almost like Brett Favre, Lou Simpson was retired for a few days and then decided he'd had enough!  He's opening his own shop with his wife that will have about $150-200M to start.  Thanks to Keith for sending me the info!  Cheers!

 

http://www.bloomberg.com/news/2011-01-21/buffett-stock-picker-simpson-opens-florida-firm-after-retiring-from-geico.html

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Judging by 13f-hr filings between 11/08 and 11/09, Buffett put a lot of pressure on Simpson to raise cash by selling deeply undervalued shares. At least, that's what I assume because Simpson was doing things like selling Carmax at 11-13 times 2007 earnings. In addition he seems to have been excluded from consideration for the management of holding company assets. The argument that Simpson is too close in age to Buffett and Munger implies no confidence in Simpson's ability to select a replacement.

 

Simpson slammed into the glass ceiling and even (probably) lost his historical autonomy.

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I'm assuming us ordinary folks have no way to invest with him, right?

According to the article linked by sanjeev it is for «accomodate family and friends plus some charities».

 

So no ordinary folks...

 

 

Yeah, I figured as much. When he stated "This business is not being run to maximize income,” Simpson said. “One of our prime thoughts was to try to help people.”  I would like to think he meant helping people who weren't already rich.  :P

 

 

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Judging by 13f-hr filings between 11/08 and 11/09, Buffett put a lot of pressure on Simpson to raise cash by selling deeply undervalued shares. At least, that's what I assume because Simpson was doing things like selling Carmax at 11-13 times 2007 earnings. In addition he seems to have been excluded from consideration for the management of holding company assets. The argument that Simpson is too close in age to Buffett and Munger implies no confidence in Simpson's ability to select a replacement.

 

Simpson slammed into the glass ceiling and even (probably) lost his historical autonomy.

 

Could be a possibility, as Simpson's protege who I met at the Pabrai Funds AGM, has/is opened/ing his own fund in Chicago.

 

Although I'm guessing this is really about Simpson retiring, being bored, and then deciding he wanted to keep busy.  Cheers! 

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It's just speculation, but if I'm Lou Simpson and my batting average has served the shareholders handsomely and I keep hearing by one top executive about the great talents of an external investor to the company that has done one big homerun, maybe it would help me to feel the need to retire.

 

Then, maybe that I would find my new retirement environment to be boring, so I would do the best of both worlds. Do what I love in the best environment I can think of (small enough sum to have a vast field in wich to choose stocks and invest for people that I like and like me too).

 

But that's just speculation from my part. The full true story is situated between the two ears of Lou Simpson.

 

Cheers!

 

 

 

 

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Guest ValueCarl

What is being thought about Lou's compensation scheme? It may not run for "income" to Lou, but it certainly won't dissuade Lou from making "income" if he's at break even or loss. He is not following in Buffett foot steps in this regard, if I understand this comp structure correctly.

 

For example, let's just say by some untimely event(s), Lou has unrealized losses for a seven year business cycle. Is it possible those people who need "help" would tolerate such drought conditions?

 

SQ Advisors will charge a 1 percent management fee and no performance fee, according to its SEC registration. Managers historically have taken 2 percent of assets and 20 percent of investment profits for running hedge funds.

 

“This business is not being run to maximize income,” Simpson said. “One of our prime thoughts was to try to help people.” 

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Guest ValueCarl

O.K. I'll ask my question in a different way, then.

 

Why the hell do I need to pay Lou one percent, if Lou's LOSING ME MONEY! That's Wall Street's Way. Did Buffett teach Simpson anything!

 

How is Lou "helping" me in this regard? I want Lou to suffer in my pain, "feel my pain," Lou, when he doesn't grow my capital from yesterday.

 

He should get paid for growing my capital from yesterday, not sucking my hind teat while capital is stagnant or declining from yesterday's benchmark.

 

Sounds like Lou and his wife want to sit in their FL mansion while the people they're supposed to be helping contribute to such a lifestyle even when they don't deserve it! imo

 

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O.K. I'll ask my question in a different way, then.

 

Why the hell do I need to pay Lou one percent, if Lou's LOSING ME MONEY! That's Wall Street's Way. Did Buffett teach Simpson anything!

 

How is Lou "helping" me in this regard? I want Lou to suffer in my pain, "feel my pain," Lou, when he doesn't grow my capital from yesterday.

 

He should get paid for growing my capital from yesterday, not sucking my hind teat while capital is stagnant or declining from yesterday's benchmark.

 

Sounds like Lou and his wife want to sit in their FL mansion while the people they're supposed to be helping contribute to such a lifestyle even when they don't deserve it! imo

 

I find it very hard to view his investors as unknowing victims.

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O.K. I'll ask my question in a different way, then.

 

Why the hell do I need to pay Lou one percent, if Lou's LOSING ME MONEY! That's Wall Street's Way. Did Buffett teach Simpson anything!

 

How is Lou "helping" me in this regard? I want Lou to suffer in my pain, "feel my pain," Lou, when he doesn't grow my capital from yesterday.

 

He should get paid for growing my capital from yesterday, not sucking my hind teat while capital is stagnant or declining from yesterday's benchmark.

 

Sounds like Lou and his wife want to sit in their FL mansion while the people they're supposed to be helping contribute to such a lifestyle even when they don't deserve it! imo

 

 

Valuecarl, I mean, Lou Simpson has a terrific track record. He's one who could do most of the money by compensating himself with a performance fee. Obviously, he's doing that because he love the game rather than he loves the fees.

 

 

Cheers!

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Guest ValueCarl

So knowing as you do, which Mr. Buffett teaches historically, that an investor at any point in time can see his capital halved, even while excluding the electronic casinos which now comprise "Mr. Market," and assuming you needed "help," how much of one hundred percent would you allocate to him from your net worth based upon this compensation scheme?

 

Lou may well be one of the great ones who would benefit most from "out performance fees," but my point remains that, in Lou's scheme, he will never lose.

 

Shouldn't we reverse engineer this and be asking, why the hell is Lou not structuring an out performance fee plan for the remainder of his life on planet earth?

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Is Lou Simpson going to invest his own money in this along with his clients?

 

If he is going to invest a meaninful sum of his own money, I would find it hard to say that he can not "lose." 

 

Conversely, if I am his client, should I really expect him to manage my money without being compensated?  He is probably charging less than the market going rate for someone with his track record.

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Guest ValueCarl

I agree.

 

<If he is going to invest a meaninful sum of his own money, I would find it hard to say that he can not "lose.">

 

A man should not be compensated for losing you money no matter what Wall Street says. He should do that on his own! Just like a man should not be compensated for not showing up to work even while this occurs in the modern era.   

 

A fair day's pay, for an honest day's work.

 

From my perspective, there is no other investment related compensation scheme for investment managers than the one Buffett incorporated in his Original Partnership. That includes a high water benchmark which first inures to limited partners, prior to sharing in the performance which exceeds that benchmark.

 

It's putting your clients' money in front of your mouth, so to speak. imo 

 

 

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I agree.

 

<If he is going to invest a meaninful sum of his own money, I would find it hard to say that he can not "lose.">

 

A man should not be compensated for losing you money no matter what Wall Street says. He should do that on his own! Just like a man should not be compensated for not showing up to work even while this occurs in the modern era.   

 

A fair day's pay, for an honest day's work.

 

From my perspective, there is no other investment related compensation scheme for investment managers than the one Buffett incorporated in his Original Partnership. That includes a high water benchmark which first inures to limited partners, prior to sharing in the performance which exceeds that benchmark.

 

It's putting your clients' money in front of your mouth, so to speak. imo 

 

 

 

Karl,

 

Wouldn't the client's overall returns be hire under the 1% "no matter what" than under Buffet's compensation plan?

 

If so, I don't see how that's not fair. 

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Karl -

 

If Buffet scheme is the best in all circumstances then what stops a manager to open 10 different funds without putting his/her own money and lever it 100 times. Using totally different bet in each, the manager can win big and collect a fat fee without taking any risk with his/her own capital. 9 out of 10 funds can go to zero and he does not have anything to loose. Does it sounds like a good deal to you.

 

Buffet scheme makes lot of sense only if a fund manager can lose his/her money as well due to taking stupid risks. Potential  loss of personal capital should be a substantial amount compared to what he/she will make by taking that risk. Otherwise nothing stops them to buy a bunch of lottery tickets with investors money.   Incentive for upside should be balanced with equal or more penalty for the downside to make sure that money is not used for blind gambling.

 

If that's ensured then I agree with you that the Buffet Scheme is better. Having said that , I will not give single penny to a day trader even with higher cut off for the performance fee but happily give 1% fixed management fee to Buffet if he wants to manage my money. Point is, the fee structure is very important aspect but not the only factor.

 

My two cents....

 

Stahleyp -

 

Clients overall returns will be higher in case of 1% management fee only if Lou performs better than 10% otherwise clients are better off with Buffet Scheme.

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Guest ValueCarl

Gentlemen, whenever the term "all circumstances," or "all or none" to take it a step further is being used, you can be assured something may go wrong. In striving for perfection, or "excellence," if we choose to use The Messiah's own words, there are many cases where imperfection will serve their users well notwithstanding their loftier goals.

 

Even the term by Obama last night, "all in," is a bit scary while knowing that there will always be casualties of such wars inside of any environment such as that.

 

I think you both made your points well including the break even math, and Lou's one percent might be the "perfect" compensation scheme for him along with his flock.  ;)     

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