Credit: Shutterstock photoTom Russo is a partner at Gardner Russo & Gardner LLC. According to Insidermonkey.com, his company managed to beat the Standard & Poor's 500 index by 4.7 percentage points annually between 1984 and 2011.
Last year, Russo gave a talk on his value investing philosophy at Google which I've posted below. This video was my first exposure to Russo, and I learned a lot. Russo was a student at Stanford University in 1982 when he attended a presentation given by Warren Buffett ( Trades , Portfolio ). He credits Buffett's presentation for inspiring him to pursue a career in the investment industry.
Russo states in very succinct terms how Buffett evolved from Benjamin Graham's teachings which is growth is better than discount. In the old value investing model, investors would focus on buying a dollar for 50 cents.
There are some downsides with this approach. First, the rate of return is dependent on how quickly the market realizes the value gap. The longer it takes for the gap to close the less an investor's annual return would be. Second, there are tax consequences to buying and selling stocks at a discount. The strategy that Buffett has come to favor is to find companies that have high rates of return on capital so they can reinvest in themselves and compound wealth.
My only previous knowledge of Russo was that he's associated with the phrase "capacity to suffer," which he credits another value investor, Jean-Marie Eveillard, with introducing. Russo's investing style focuses on consumer brands with pricing power that can reinvest for the long term. The capacity to suffer describes companies that can overlook short-term financial pain to prosper in the long term.
In the video, he gives examples of companies that invested properly for the long term as well as companies that went half way and were then disrupted by activist investors with short term goals. He stresses that incentives need to be set properly for companies to truly have a long-term perspective. As a result, Russo says family owned businesses with a controlling interest is one area he prefers.
He also favors European companies. The reason is that European managers are usually paid in cash and not in time-sensitive stock options. Russo believes that global commerce will be a big tailwind for prosperity as only a small percentage of the world lives in developed countries. He believes European companies are better prepared to expand into international markets because of their long-term outlook and their multicultural sensibilities. He uses Nestle (XSWX:NESN) as an example of a company where its top executives speak four languages on average.
I was pleased to learn that GuruFocus interviewed Russo last year and published it in two parts. The Google video and the GuruFocus interview compliment one another. You can read the interview here and here . My notes for the video with the time stamps for each topic are posted below.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
