We've likely all heard that Warren Buffett, soon to turn 80, has a list of people who can replace him whenever he steps down. But now, it looks like he'll have to appoint a new investing genius at one of his subsidiaries sooner than he would have liked.
Lou Simpson, who has managed the GEICO investment portfolio for Buffett's Berkshire Hathaway (NYSE: BRK-B) for about 30 years, is retiring at year's end. The news apparently surprised Buffett, who wishes the 73-year-old would stick around for another few decades.
If you think this might present a crisis, think again. Buffett has long required his top managers to regularly give him the names of recommended successors. In addition, Buffett has already been on the lookout for an investing successor for himself, so he likely has a number of names in mind. Recently, Chinese-American investor Li Lu, who helped introduce Charlie Munger to Chinese battery- and automaker BYD, has been rumored as a top contender for Buffett's job; many others consider David Sokol a frontrunner to take over Buffett's management duties.
Simpson's style
We can learn a few things from Simpson's successful tenure. For one thing, he's a value-focused investor like Buffett, which only lends more credibility to the practice of demanding a margin of safety.
Simpson and Buffett's investing approaches are so similar that the press often mistakes one for the other. When the media reported that Buffett bought or sold a particular company, Simpson may actually have done the buying or selling for the GEICO account. Buffett has explained that whenever there's a relatively small trade of around $300 million to $400 million, Simpson is likely behind it; Buffett usually deals with bigger sums of $1 billion or more.
Thus, the recent purchase of electronic commerce specialist Fiserv (Nasdaq: FISV) was likely Simpson's decision, along with Republic Services (NYSE: RSG) and Iron Mountain (NYSE: IRM).
It's clear why such businesses might attract him. Electronic commerce is a booming business, and Fiserv can help companies manage their transactions, processes, and documents. Better yet, its dividend is growing rapidly. Republic Services, which also boasts rising payouts, occupies another booming field, waste management, and stands to get more business as we recycle more. Iron Mountain helps companies store and manage their paper and documents, and it's also involved in the emerging arena of cloud computing.
Interestingly, Simpson's compensation over the years has been based on his performance over three-year periods. Lackluster periods will always plague investors from time to time; a longer-term time frame is the best way to gauge one's success. Don't worry about Simpson on this account. He underperformed the S&P 500 in only three of the 24 years in which his performance was broken out.
We can learn from Simpson's moves, but we needn't worry about his retirement. Buffett has it all handled.
Instead, you might want to worry about your own retirement.
