Tom Russo is one of the most interesting value investors I have ever encountered. His style is very different than anyone else. It can be most compared to Warren Buffett, except he differs from Buffett in several ways. Tom Russo is (and has not been) bullish on Kraft (KFT), which is a top holding of Buffett. Russo also invests a lot internationally, especially in Western Europe.
One theme that does not seem to change is that Russo is very consistent with his investing style. Mohnish Pabrai and Bruce Berkowitz have changed their investing styles pretty recently. Pabrai has become less concentrated, and Berkowitz has loaded up on financials and shifted away from other sectors. Russo investment style has been consistent through his almost 30 years of experience.
Any individual who religiously reads his shareholder letters would be aware of the fact that he has been consistent with his style of investment. This very consistency of his investment philosophy indicates his unique capability as an investor. As evident from his 13-F portfolio filings, Russo’s top holdings hardly ever change. Some companies that make up the largest chunk of his 13-F portfolio are the ones he has owned for over two decades.
Below are his top holdings:
For example, Russo purchased Nestle (NSRGY, Financial) in 1987, Berkshire Hathaway in 1982, and Heineken (HINKF) in 1989. All these three companies are among the top five holdings of Thomas Russo. Evidently, he is a (really) long-term investor.
In general, Russo invests in few selective industries which have historical proof of generating enough free cash flow to ensure sustainability. He spends considerable amount of time researching different companies belonging to his sector of expertise. Sticking to his area of competence, Russo believes he is better able to have an edge over other investors.
His favorite sectors include food, beverages, advertising-supported media, and tobacco. According to him, companies in these four sectors have powerful brands and have products which have loyal customers who are reluctant to switch or substitute their brand of preference. Consequentially, the companies of these sectors have predictable cash-flows and high pricing power. Heineken is a good example. He purchased a stake in Heineken way back in 1987 owing to the attractive pricing and globally recognized beer products of the company. Furthermore, he likes the growth strategy of Heineken as they expand their business through acquisition and penetration into new markets. Also, Russo believes the businesses of companies such as Heineken are easier to track. He can acquire valuable information regarding the health of the business by simply talking to the bartenders.
He does not limit himself to local companies. Russo is an international investor who keeps into perspective the managerial and financial strength of the companies when investing. He is highly research oriented and ensures the companies he invests in meet the requirements necessary for them to be considered as good investments for a period of five to ten years.
Price and value are two factors which influence his stock selection process. Russo looks for good companies with strong cash flow and efficient management which are being sold at bargain prices. Russo limits his risks by paying a small multiple of the company’s net free cash flow in respect to the prevailing interest rate. He invests in companies on basis of the ratio of enterprise value to EBITDA or a multiple of EBITDA. His general rule of thumb is to invest in companies by paying a modest multiple of 8x EBITDA, however, depending on the company and the industry, the multiple he is willing to pay varies.
As mentioned before, Thomas Russo is an investor with long-term orientation. In order to be comfortable taking a long position in companies, he makes certain they have good management. According to him, management should focus on increasing the shareholder value by putting the interest of the shareholders first. He likes companies that are family controlled. The companies with management which concentrate on maximizing their own personal profits rarely prove to be good options for long-term investment.
The companies he invests in have strong balance sheets and substantial evidence of historically consistent high rate of return on their assets. Additionally, it seems that he acquired his investment approach from his time working at Sequoia Fund from 1984 to 1988. Keeping his investment philosophy in view, it is not surprising to know he is inspired by the famous Warren Buffett. Russo is an avid reader of his writings and a keen participant in Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) annual meetings.
One theme that does not seem to change is that Russo is very consistent with his investing style. Mohnish Pabrai and Bruce Berkowitz have changed their investing styles pretty recently. Pabrai has become less concentrated, and Berkowitz has loaded up on financials and shifted away from other sectors. Russo investment style has been consistent through his almost 30 years of experience.
Any individual who religiously reads his shareholder letters would be aware of the fact that he has been consistent with his style of investment. This very consistency of his investment philosophy indicates his unique capability as an investor. As evident from his 13-F portfolio filings, Russo’s top holdings hardly ever change. Some companies that make up the largest chunk of his 13-F portfolio are the ones he has owned for over two decades.
Below are his top holdings:
| Ticker | Company | Industry | Shares | Value ($1000) | % Weighting as of 2011-06-30 | [url=http://www.gurufocus.com/holdings.php?GuruName=Tom+Russo&sort=change]Share # Change from Last Period[/url] | Trade Impact to Portfolio (%) |
| NSRGY | Nestle S A Reg | others | 9,948,147 | 617,328 | 11.6592% | +1.9% | +0.22% |
| PM | Philip Morris International | Personal & Household Goods | 8,126,378 | 542,598 | 10.2478% | +1.68% | +0.17% |
| BRK.A | Berkshire Hathaway Inc. Cl A | Insurance | 3,715 | 431,330 | 8.1463% | +4.47% | +0.35% |
| CFRHF | CIE FINANCIERE RICH | others | 5,953,888 | 389,265 | 7.3519% | +1.09% | +0.08% |
| HKHHF | HEINEKEN HOLDING | others | 7,016,300 | 358,887 | 6.7781% | +2.24% | +0.15% |
| SBMRF | SABMILLER ORD $0.10 | others | 8,049,426 | 293,544 | 5.544% | +3.95% | +0.21% |
| PDRDF | PERNOD RICARD | others | 2,830,377 | 278,922 | 5.2679% | +5.37% | +0.27% |
| WFC | Wells Fargo & Co. | Banks | 8,075,615 | 226,602 | 4.2797% | +17.7% | +0.64% |
| MA | MasterCard Cl A | Financial Services | 744,059 | 224,215 | 4.2346% | +7.99% | +0.31% |
| UN | Unilever N.V. ADS | Food & Beverage | 6,485,557 | 213,051 | 4.0238% | +4.8% | +0.18% |
| MO | Altria Group Inc. | Personal & Household Goods | 7,064,590 | 186,576 | 3.5238% | +1.79% | +0.06% |
For example, Russo purchased Nestle (NSRGY, Financial) in 1987, Berkshire Hathaway in 1982, and Heineken (HINKF) in 1989. All these three companies are among the top five holdings of Thomas Russo. Evidently, he is a (really) long-term investor.
In general, Russo invests in few selective industries which have historical proof of generating enough free cash flow to ensure sustainability. He spends considerable amount of time researching different companies belonging to his sector of expertise. Sticking to his area of competence, Russo believes he is better able to have an edge over other investors.
His favorite sectors include food, beverages, advertising-supported media, and tobacco. According to him, companies in these four sectors have powerful brands and have products which have loyal customers who are reluctant to switch or substitute their brand of preference. Consequentially, the companies of these sectors have predictable cash-flows and high pricing power. Heineken is a good example. He purchased a stake in Heineken way back in 1987 owing to the attractive pricing and globally recognized beer products of the company. Furthermore, he likes the growth strategy of Heineken as they expand their business through acquisition and penetration into new markets. Also, Russo believes the businesses of companies such as Heineken are easier to track. He can acquire valuable information regarding the health of the business by simply talking to the bartenders.
He does not limit himself to local companies. Russo is an international investor who keeps into perspective the managerial and financial strength of the companies when investing. He is highly research oriented and ensures the companies he invests in meet the requirements necessary for them to be considered as good investments for a period of five to ten years.
Price and value are two factors which influence his stock selection process. Russo looks for good companies with strong cash flow and efficient management which are being sold at bargain prices. Russo limits his risks by paying a small multiple of the company’s net free cash flow in respect to the prevailing interest rate. He invests in companies on basis of the ratio of enterprise value to EBITDA or a multiple of EBITDA. His general rule of thumb is to invest in companies by paying a modest multiple of 8x EBITDA, however, depending on the company and the industry, the multiple he is willing to pay varies.
As mentioned before, Thomas Russo is an investor with long-term orientation. In order to be comfortable taking a long position in companies, he makes certain they have good management. According to him, management should focus on increasing the shareholder value by putting the interest of the shareholders first. He likes companies that are family controlled. The companies with management which concentrate on maximizing their own personal profits rarely prove to be good options for long-term investment.
The companies he invests in have strong balance sheets and substantial evidence of historically consistent high rate of return on their assets. Additionally, it seems that he acquired his investment approach from his time working at Sequoia Fund from 1984 to 1988. Keeping his investment philosophy in view, it is not surprising to know he is inspired by the famous Warren Buffett. Russo is an avid reader of his writings and a keen participant in Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) annual meetings.
