Why One of Warren Buffett's Favorite Investors Barely Traded
A study of Legendary Investor Lou Simpson
Dear Investor.
Zee here. Welcome to this final 2-part series where we will study little known legendry investors.
Today, we will discuss Lou Simpson managed over $4 billion for Geico’s investment portfolio for nearly three decades and Warren Buffett called him “one of the investment greats.” His track record wasn’t built on trading hundreds of stocks or chasing the latest trends. Instead, Simpson held just 10-15 stocks at a time and turned over only 15-20% of his portfolio annually.
To put that in perspective: if you started the year with 10 stocks and had 15% turnover, you’d make maybe one or two changes all year. While other fund managers were executing dozens or hundreds of trades, Simpson sat quietly, let his best ideas compound, and consistently beat the market.
His secret?
Extreme discipline through a simple mental model.
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The 20-Punch Card Rule
Buffett once gave Simpson a powerful thought experiment: imagine you have a punch card with only 20 holes. Each time you make an investment decision, buying or selling—you use one punch. Once those 20 punches are gone, you can never invest again.
This constraint changes everything. It forces you to think carefully about every decision. No more impulsive trades. No more “just checking” if you should sell because a stock dropped 10%. No more switching into whatever CNBC is talking about today. Each move has to count.
The punch card isn’t a literal rule, Simpson made more than 20 trades in his career. But it’s a mental framework that creates friction before every decision. It makes you ask: “Is this really worth one of my precious punches?”
Most investors treat their portfolio like a video game, racking up transactions. Simpson treated his like a carefully curated collection where every piece had to earn its place and keep earning it.
The Flower and Weed Problem
Simpson noticed that most investors do something completely backwards: they “cut their flowers and water their weeds.”
In plain English? They sell their winning investments to lock in gains, then hold onto their losers hoping they’ll recover. It feels good to take profits. It feels painful to admit you were wrong. So people do what feels comfortable rather than what’s rational.
Simpson flipped this completely, he sold what wasn’t working and let his winners keep running.
Why does this matter? Because in investing, your winners can compound for years or even decades. If you buy a great company at $50 and sell it at $75 because you’re happy with a 50% gain, you might miss it going to $200, $500, or higher. Meanwhile, that stock you’re holding onto because you bought it at $100 and it’s now at $60? It might never come back. You’re letting hope drive your decisions instead of facts.
Simpson’s approach was brutally honest: if the investment thesis is broken, sell. If it’s working, let it work.
The Regret of Selling Too Soon
His biggest regret in investing? Selling really good companies too soon. “If you’ve made good investments, they will last for a long time,” he said.
Think about that. This is someone who managed billions of dollars successfully for decades, and even he struggled with taking profits too early. It’s one of the hardest lessons in investing: when you find something exceptional, your job isn’t to trade it—your job is to hold it and let compounding do the heavy lifting.
The math explains why. If you hold a stock that goes up 20% per year for ten years, you don’t make 200%. You make 519%. That’s the power of compounding. But if you sell after year three because you’ve already made 72%, you leave 447 percentage points on the table.
Simpson learned this lesson through experience. The companies he regretted selling weren’t the ones that crashed after he left—they were the ones that kept climbing without him.
Why More Opinions Hurt Returns
One surprising observation from Simpson: there’s a negative correlation between the number of people making investment decisions and the quality of results.
When you need group consensus, the least competent person in the room often determines the outcome. Everyone has veto power, so bold moves get watered down to mediocre compromises. The best ideas, the ones that seem risky or unconventional, get killed in committee.
This is why many large investment firms underperform despite having teams of smart analysts. More voices doesn’t mean better decisions. It means more politics, more groupthink, and more regression to the mean.
Simpson ran his portfolio essentially solo. No committees. No consensus-building. Just one person making concentrated bets based on deep conviction. That clarity of decision-making was part of his edge.
What This Means for You
For investors, Simpson’s approach offers a refreshing alternative to the noise:
Trade less, think more. Every time you’re tempted to make a move, imagine you’re using one of your 20 precious punches. Does this decision really deserve it?
Let your winners run. When you find something that works, resist the urge to lock in profits just because it “feels good.” The best returns come from letting great companies compound over years, not months.
Cut your losers quickly. If an investment thesis breaks—the company’s fundamentals deteriorate, management disappoints, the competitive landscape shifts—don’t hold on hoping for a recovery. Hope isn’t a strategy.
Keep it simple. You don’t need 50 stocks. Simpson proved you can manage billions with 10-15 high-conviction ideas. Focus beats diversification when you actually know what you own.
Decide for yourself. Don’t outsource your thinking to Reddit threads, Twitter gurus, or investment committees. The quality of your decisions goes up when you’re accountable to yourself, not trying to please everyone.
The bottom line: Your best investments should be boring to watch, not exciting to trade. If you’re constantly monitoring, adjusting, and second-guessing, you’re probably overtrading. Simpson’s genius was knowing when to do nothing—and having the discipline to actually do it.
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Disclaimer: All information here is for educational purposes only. This is not financial advice. Please do your own research and speak with a licensed advisor before making any investment decisions. Past performance is not indicative of future returns. How we invest may not suit your investment goals and risk management profile.