This article is first in a series that provides an ongoing analysis of the changes made to Lou Simpson's US stock portfolio on a quarterly basis. It is based on Simpson's regulatory 13F Form filed on 08/14/2013. Lou Simpson launched SQ Advisors in early 2011 with the purpose of managing the funds of his family and friends and certain charities (separate accounts in an LLC structure). Prior to this, his track record as a lieutenant of Warren Buffett was exceptional. This fact was revealed by Buffett himself in his letter to shareholders in 2004: Simpson's portfolio (managing the investments of Geico Corporation under Berkshire Hathaway) had average annual gains of 20.3% compared to 13.5% for the S&P 500 index during the 1980-2004 timeframe. Lou Simpson's overall style is very comparable to Buffett and over the years they have had overlapping positions. But, as his portfolio size was orders of magnitude smaller than Buffett's, he often had positions in mid-cap businesses. Simpson himself classifies his style as being more in the "scuttlebutt" mold: in a 2010 interview with Chicago Tribune, he said "We try to talk to competitors. We try to find people more knowledgeable about the businesses than we are." Since inception in 2011, SQ Advisors have held a very concentrated portfolio of 10 to 15 positions.
This quarter, Simpson's US long portfolio increased around 6.5% from $1.59B to $1.69B. The number of holdings in the portfolio remained steady at 15. The top five holdings represent more than 50% of the US long assets. The largest holding is Berkshire Hathaway (BRK.A) (BRK.B) which has been in the portfolio since inception and now accounts for 11.38% of the US long portfolio.Stake Disposals:
Lowe's Companies (LOW): LOW has been in the portfolio since the first 13F filing in Q4 2011. The 4.41% position as of last quarter was disposed of this quarter at prices between $37.30 and $43.20. The stock currently trades at just over $44. The original stake was marginally increased to a huge 11.51% position in Q1 2012 but since then the position has been consistently sold every quarter. The substantial stake reduction over several quarters followed by the stake elimination this quarter indicates a clear bearish bias.New Stakes:
United Parcel Service (UPS): UPS is a brand new 7.85% of the US long portfolio stake established this quarter at prices between $82.30 and $89. The stock currently trades at around $86. The significant stake establishment indicates a bullish bias.Stake Decreases:
Berkshire Hathaway : BRK is Simpson's largest position at 11.38% of the portfolio. It was a 9.19% position in the Q4 2011 13F filing. The position was increased by roughly 40% in Q1 2012 at prices between $76 and $82. The position was increased in the next several quarters although this quarter saw a slight trimming. Lou Simpson continues to be very bullish on Berkshire Hathaway stock. The stock currently trades at $115, well above Simpson's average cost-basis.
Cenovus Energy (CVE): CVE is a 4.91% of the US long portfolio position that was marginally decreased this quarter at prices between $28.50 and $32. The stock currently trades at $29.37. The position has been in the portfolio since Q4 2011.
Fiserv Inc. (FISV): FISV was built-up over several quarters to a very large 10.71% of the US long portfolio position by Q3 2012. Since then, the position has been consistently trimmed over the following quarters. This quarter, the stake was reduced by more than half to a 2.84% of the US long portfolio position at prices between $85.50 and $91.50. The stock currently trades above that range at $99. The large stake reduction indicates a clear bearish bias.
Moody's Corp (MCO): MCO was a 4.86% of the US long portfolio stake established in Q4 2012 at prices between $44 and $51.50. Last quarter, the stake was roughly doubled at prices between $43.30 and $55.50. The stock currently trades at just over $64. The position was trimmed slightly this quarter and the stake currently stands at 7.72%. Lou Simpson is very bullish on MCO.
TE Connectivity (TEL): TEL has been in the portfolio since Q4 2011 when it was already a 10.36% stake. The share count has since been increased by roughly 40% over several quarters. As a percentage of the US long portfolio, the stake stands at 10% as the overall portfolio value has increased substantially in the interim. This quarter saw a minor stake reduction. The activity does not indicate a shift in bias.
Valeant Pharmaceuticals (VRX): VRX position has been increased by ~50% since Q4 2011. The stake currently stands at 9.02% of the US long portfolio. Simpson is sitting on large gains on this position.Stake Increases:
Brookfield Asset Management (BAM): BAM is a 6.15% of the US long portfolio position first purchased in Q2 2012 at prices between $30 and $33. The stake was increased by ~10% this quarter at prices between $34.30 and $39.10. The stock currently trades at around $36.
Crown Holdings (CCK): CCK position has been increased by ~62% since Q4 2011. The stake was marginally increased this quarter to a 6.75% of the US long portfolio position. The stake build-up over multiple quarters indicates a bullish bias.
Directv (DTV): DTV position has been increased by more than double since Q4 2011. The stake was increased marginally this quarter to a large 11.14% of the US long portfolio position. It is currently Lou Simpson's second-largest position after Berkshire Hathaway. The large position size and the stake build-up suggest a clear bullish bias.
Oracle Corporation (ORCL): ORCL is a large 9.77% position which was first purchased in Q1 2012 at prices between $26.50 and $30.20. This quarter, the position was increased marginally at prices between $29.90 and $35.10. The bulk of the position was purchased in Q4 2012 and Q1 2013 at prices between $29.50 and $36.30. The stock currently trades at around $33. The aggressive stake build-up indicates a clear bullish bias.
Charles Schwab (SCHW): SCHW stake has been increased by close to 50% since Q4 2011. The position currently stands at 9.78% of the US long portfolio. This quarter saw a marginal increase. The consistent pattern of stake increases indicates a bullish bias.
Wells Fargo (WFC): WFC is a 9.40% of the US long portfolio stake that has been increased by over 70% since Q4 2011. The position saw consistent buying over all the interim quarters. The activity indicates a clear bullish bias.
The only remaining position is a minute 0.03% of the US long portfolio position in US Bancorp (USB) which was kept steady this quarter.
The spreadsheet below highlights changes to Simpson's US stock holdings in Q2 2013: