GuruFocus had the pleasure of hosting a presentation with Tom Russo (Trades, Portfolio), managing member of Gardner Russo & Quinn LLC and Semper Vic Partners GP, LP.
Russo joined Gardner Russo & Quinn as a partner in 1989. In 2014, he became the managing member of the firm. Gardner Russo & Quinn and Semper Vic Partners oversee two "global value," long-only, equity investment partnerships, the first of which Russo founded in 1983. The guru oversees more than $8 billion distributed between Semper Vic partnerships and separate accounts managed in parallel fashion.
His investment strategy seeks globally leading companies whose brands permit them the capacity to develop market shares in the parts of the world that are undergoing economic growth and increasing political stability. He prefers companies with sufficient cash flows from existing operations to allow them to underwrite long-term-oriented investments required to build market share and develop enduring franchises.
The end of the second quarter saw top holdings in Berkshire Hathaway Inc. (BRK.A), Mastercard Inc. (MA), Nestle SA (NSRGY), Alphabet Inc. (GOOG) and Philip Morris International Inc. (PM).
Watch the full video here:
Key Takeaways
Russo started his presentation discussing the start of his investment career, which involved a visit from Warren Buffett (Trades, Portfolio) to one of his business classes in 1982. He then discussed the influence of his professor, which led him to become a global investor.
As the value of a company is entirely dependent on growth, Russo emphasized the importance of looking for companies with the “capacity to reinvest” in order to grow as well as the “capacity to suffer” in the short term in order to benefit in the long term.
Diving into the first topic, Russo said he focuses on companies that operate on a global scale and are largely family-owned businesses. By operating on a global scale, a company drastically increases the potential to see population growth among its consumers by spreading into new markets. Then combine a global scale with family management and a company is created that is focused on making the best changes over the long term. In this case, a company that is happy to reinvest capital to expand the business rather than show high returns for shareholders.
As for a company’s “capacity to suffer,” many of the companies he has invested in have taken serious hits to their bottom lines or expansion due to reinvesting in themselves for long-term success. His examples covered companies that found themselves investing large sums of money in places that other investors would have seen as destroying value. By suffering the short-term consequences, these companies came out on top and saw massive benefits.
Stocks
Russo used several companies to highlight his key points and show where he sees value opportunities currently. Covering several companies at a time, he looked at different consumer goods industries.
Revisiting Nestle, which he covered during his last presentation, Russo said the company has shown “the capacity to suffer” as it has restructured its business under the leadership of Mark Schneider. During the course of the Covid-19 pandemic, the company has acquired extraordinary businesses that it would not otherwise been able to, allowing it to buy companies like Aimmune, a biopharmaceutical company focusing on developing oral treatments for potentially life-threatening food allergies, and meal delivery service Freshly.
Another one of the stocks he covered during the presentation was Heineken NV (XAMS:HEIA), a Dutch brewer that owns over 165 breweries and produces 348 international, regional, local and specialty beers and ciders. He said the company demonstrates the “capacity to suffer” in its pursuit for expanding its business across the globe over the past several years.
Questions
Throughout the presentation and pausing between sections, Russo took questions from the audience. One question that was raised was in regard to his views on inflation.
While he is worried about inflation, he believes it will be transitory. He noted that we are going through a “crazy time” currently with the pandemic, supply chain disruptions and chip shortages. He used Hasbro Inc. (HAS) as an example in that the company announced it is having to pay significantly more for a load of Tonka trucks than it has in the past. However, since it has such a powerful brand, the company should be able to raise prices to cover the cost, as customers will likely be willing to fork over more money just for the name.
Several audience members also inquired about his investment in Alibaba Group Holding Ltd. (BABA), specifically asking if he is worried about the consequences of the stock potentially being delisted and the Chinese government’s approach to its VIE structure.
Russo said his view of the company was shaped by the comments he received from other portfolio companies in regard to the e-commerce giant, having gotten involved with its Tmall business in order to operate in China. The guru said he looks for businesses where people say they cannot do without them.
As for the Chinese government’s crackdown, Russo said he believes they understand they need Western capital on terms that are agreeable, along with Western technology and markets.
