Tom Russo's Interview on Wealthtrack

Global value investor Tom Russo of Gardner Russo & Gardner recently appeared on Consuelo Mack's WealthTrack.  Russo mainly focuses on consumer products companies with a global presence and has a long-term holding period.

Embedded below is the video of Russo's interview:



For more from this show, head to Joel Greenblatt's interview as well as Bruce Berkowitz's chat.

Thomas Russo's Presentation at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Thomas Russo of Gardner Russo Gardner who talked about global value investing.


Tom Russo's Value Investing Congress Presentation

•    Core principles – fifty cent dollar bill, capacity to reinvest and capacity to suffer.


•    Capacity to reinvest is one of the most exciting factors. In the past sold some domestic names which couldn’t reinvest in the long term (focus on international brands, especially consumer products).
•    Has long owned spirits companies, owns four of them currently. Entering the China spirits market – hasn’t deeply penetrated the market yet. Over-time should develop. Over half a billion cases in the Chinese market – plus express a desire for these beverages (i.e. cognac).
•    The mainland Chinese consumers are on the move – over 100 million will travel around the world and experience products such as Johnny Walker/Hennessy and will be natural brand ambassadors. That is just the Chinese market alone.
•    Indian market is another huge potential market, only 1% of whiskey is from Scotland.
•    Need to invest the right amount of money to grow the business – will lose money at the start (upfront costs like distribution, marketing, etc.).  Very expensive early on. It burdens income in the beginning. The right way to enter? Managements need to have the capacity to suffer, being able to take a hit to earnings in order to invest in new investments. I.e. – don’t be short termed.
•    Companies who have been able to invest in growth in a smart amount, generally are family-controlled companies, for which the street and activists cannot interfere.
•    60% of portfolio is family-controlled businesses.
•    General Mills won over decades the yogurt war, relished the $300MM earnings contribution from yogurts at the peak and some point along the way they missed the greek yogurt trend. Didn’t devote money to protect the segment – believed they didn’t have flexibility. Greek yogurt was allowed to grow, to the point it is untouchable. General Mills had the capacity to reinvest in that category and missed it. Now Chobani will garner a $5B valuation (est.).


•    Capacity to suffer example – BRK’s equity index put options a prime example, Warren got premiums to invest for 15 years, while taking a couple years of reported earnings hit (the end sum from premiums invested is what needs to be viewed instead).
•    Mastercard and Nestle are examples of companies which reinvested into their business and temporary depressed earnings for LT growth.
•    Also like businesses who are tax conscious.
•    1999 was Tom’s best year ever – he was down 2%, but the setup presented was amazing (i.e. buying opportunities).
•    Why aren’t these principles followed? Wall Street is focused on short term results. Culture had changed to chasing quarterly results.
•    One of Wall Street’s mistaken emphasis – focus on R&D as a percentage of sales.
•    Reckitt Benckiser vs. Nestle – The Streets mistake on working capital as a percentage of sales. Talks on how analysts commented on a few CPO companies’ working capital practices, Nestle for instance. They saw Reckitt release working capital and questioned others as to why they are not doing the same. As Nestle grows into a higher mix in developing markets – they need to have working capital to keep product stock as distribution costs and stocking costs are higher. As they grow in these markets, need to grow working capital.
•    Cash Flow conversion ratio – another street mistaken emphasis.  Tom wants companies that can reinvest their cash – while the street wants a majority of cash to be distributed.
•    Percent of business from new products (within 3 years) – another mistaken concept.
•    Avoid family controlled company – another Wall Street mistaken concept. Talked about the differences between Comcast and Adelphia (went bankrupt). As investors we can gauge the caliber of people running the business.
•    No ONE variable is the answer, you need to look at all the factors to stay aloft.
•    To summarize – find businesses with a longer term horizon.


Be sure to check out the rest of the Value Investing Congress presentations.

Interviews with Julian Robertson & Jim Chanos: Columbia Business School Newsletter

We wanted to highlight the latest version of Columbia Business School's newsletter: Graham & Doddsville.  In their latest edition, they publish interviews with Tiger Management's Julian Robertson and Kynikos Associates' Jim Chanos,


Below are some excerpts we found insightful from the Tiger Management founder:

Julian Robertson on his investment philosophy: "I believe that the best way to manage money is to go long and short stocks.  My theory is that if the 50 best stocks you can come up with don't outperform the 50 worst stocks you can come up with, you should be in another business ... For my shorts, I look for a bad management team, and a wildly overvalued company in an industry that is declining or misunderstood."

Robertson on evaluating an initial idea: "The first thing is, is the management decent and honest?  A lot of people don't really care about that.  The way to look into that is to do some diligence."

On qualities he looks for in seeding funds: "Competitiveness.  Is he a competitor?"  He references that he often likes athletes due to their will.

Robertson's favorite plays (aside from Google and Apple): "I love WuXi (WX) which is a Chinese-based employment agency for PHDs, primarily in the drug industry ... the company's earnings are certainly increasing beautifully at about 20% a year and it still sells at 10x earnings."



Good insight from the interview with the Kynikos founder:

Jim Chanos on his early experiences in investing and lessons learned: "I recommended a short position in Baldwin-United at $24 ... the stock promptly doubled on me.  This was a good introduction to the fact that in investing, you can be really right but temporarily quite wrong."  (He started Kynikos with $16 million, $1 million of which was his own money.)

Chanos on long versus short: "I've learned there's a big difference between a long-focused value investor and a good short-seller.  That difference is psychological and I think it falls into the realm of behavioral finance ... if you're a short-seller, that's a cacophony of negative reinforcement.  You're basically told that you're wrong in every way imaginable every day.  It takes a certain type of individual to drown that noise and negative reinforcement out and to remind oneself that their work is accurate and what they're hearing is not."

On skills essential to succeed: "Start first with the SEC filings, then go to press releases, then go to earnings calls and other research. Work your way out.  Most people work their way in."

Chanos' current positions: Short natural gas industry in the US, betting against the coal industry.  He also thinks for-profit education business is flawed.  In his Opportunity Fund, he's currently short Chinese property companies and long Macau casinos.  We've also posted some of his other short positions.



The newsletter also features write-ups from MBA students on Avon Products (AVP), Ingersoll-Rand (IR), Legg Mason (LM), and H&R Block (HRB) as well as interviews with Tom Russo and Alexander Roepers.

Embedded below is the full Graham & Doddsville Spring 2012 issue:




For more on these particular investors, we've posted up:

- Jim Chanos on short selling: the power of negative thinking

- Charlie Rose's 1998 interview with Julian Robertson

Tom Russo's Presentation on Global Equities: Value Investing Congress Omaha

Today we're posting up notes from day 1 of the Value Investing Congress.  Below is the presentation from Tom Russo of Gardner, Russo & Gardner on global equities.  The following notes are courtesy of Kyle Mowery from GrizzlyRock Capital.

Capacity To Suffer - Global Value Equity Investing

•    SAB Miller, Pernot Ricard, Nestle, Berkshire: Total 4 above 28% of his portfolio. (total 70% international)
 •    High agency cost risk in public markets
•    Used to speak of Weetabix (cereal company with family control) compound of 21%. Was worth £150MM then sold to Hicks use for £600 pounds
•    Nestle saying Chinese companies are becoming players on the international front.  Sure enough – food firm from China just bought this cereal company for £2,000MM
•    Europe is where they are looking now
•    Culture of Nestle has culture of centuries old Japanese temple – take the time to do it right: Nestle has 35 year planning horizon.
•    Buying brands around the world that are strong and stable – Russo investing in companies’ which are investing across the emerging globe building brands and product lines.
•    Holds positions a very long time to take advantage of attributes compounding returns without taxation
•    Berkshire:  GEICO has $30mm advertising budget in 1996 to $1,000mm over period of owning GEICO.  Reason was $250 loss per new sub but BRK changed - but NPV of sub is $1,500.  So short term profits down with significant growth of subs.  Equity Put Options: $37bn of insurance sold for $5bn. At peak, BRK has $15b of losses on the income statement. $3bn charge for multiple.
•    Pernot Ricard (Credit Default Swap mayhem): Invested in China in early 2000’s, Absolute 2009, India now,  Family controlled – so can take the losses
•    SAB Miller investing aggressively in Africa – huge opportunity over time.
•    300MM bottles of homemade beer – will shift to bottled beer over time in Africa.
•    Just bought Fosters – will do well over time.


Question & Answer Session: ABInBev managers 2nd best in the world only to Buffett and Munger. Mentioned Brazilian railway with a 40% ROE.


Embedded below is Tom Russo's slideshow presentation:




Be sure to click here for other presentations from the Value Investing Congress.

Thomas Russo: Investment Opportunities Abroad & Nestle (Invest For Kids Chicago Notes)

At Invest For Kids Chicago yesterday, Thomas Russo of Gardner Russo Gardner gave a presentation on investment opportunities abroad and going long Nestle (NSRGY).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Find Better Opportunities Abroad

Russo has 70% non-US exposure and he's been looking at European ideas that generate revenue outside of Europe. He lists the benefits of investing globally:

1. Capacity to continue to reinvest in pursuit of corporate wide ROICS
2. Freedom from dividend burdens
3. Corporate ethics / culture knowledgeable
4. Corporate governance
5. Global talent pool
6. Global best practices
7. Lower valuation available (Euro companies loathed)
8. Reduce translation risk

Nestle (NSRGY): He likes that they're focused on better foods. The secure global parent company is much cheaper than underlying national divisions.

Russo focused on how companies must have a chance to reinvest (strength in brands). He alluded to Kraft Foods and its domestic history where the core business lacked ability to effectively expand overseas. He says you must have long tail to expand abroad.

Pernod Ricard: They went to China with large capacity to grow and invest. 15% of profits are in China and it's family controlled. India is a huge opportunity for spirits.

SAB Miller: The company just purchased Fosters and local brewed beer is a big opportunity. Their sales are rising but EBITDA margin is down and.

He says that market volatility is a friend of the long-term investor. It permits more efficient capital reinvestment, offers M&A opportunity, and enhances share repurchase opportunities. He also says that investment managers have to have the capacity to suffer, in 1999 he was down 2% while the market was up significantly.

At the Leaders in Investing Summit earlier this year, Russo said he likes SAB Miller as well.


You can view full notes from Invest For Kids Chicago here.