Tom Russo’s investment theme can be summarized by “eat, drink, smoke, watch TV and be merry”. Indeed, for about 30 years, he has been sort of staying in his “circle of competence” food, tobacco, media, and beverage companies. It has been reported that his performance for the past ten years has been around 8% while S&P 500 had a down decade. It is also reported that he update his clients on months basis even though he runs a hedge fund. I guess his investors are very good with keep things close to their chest, as we have not seen any of his letter got leaked out.
However, I found Russo quite willing to talk about his investment strategies and positions in conferences and in media appearance. Perhaps because of the heavy weighting of his portfolio in Berkshire Hathaway, he was seen in a number of occasions commenting on Warren Buffett’s investment activities. Read:
In GuruFocus, we have documented his investment strategy and processes in this post. Yes, he typically confines himself to the themes of “eat, drink, smoke, and watch TV”, but in the mean time, he has a large geographic reach, looking for value not just in the US, but beyond the board. In order to valuate companies from different accounting regime, Russo elected to compare Enterprise Value to EBITDA in his stock selection. Here is the note in the previous cited article:
In Value Investing Congress this year, Tom Russo discussed his international investing strategy. Here are some notes taken by Ben Claremon:
Tom Russo Top Purchases Last Quarter
No. 1: MasterCard Inc. (MA, Financial), Add: 2.09% of the portfolio - Total: 323,940 Shares
MASTERCARD INCORPORATED advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. Mastercard Inc. has a market cap of $26.17 billion; its shares were traded at around $201.63 with a P/E ratio of 16.8 and P/S ratio of 5.2. The dividend yield of Mastercard Inc. stocks is 0.3%.
No. 2: AnheuserBusch Companies Inc. (BUD, Financial), Buy: 1.41% of the portfolio - Total: 625,995 Shares
Anheuser-Busch Companies is the holding company parent of Anheuser-BuschIncorporated and to a number of subsidiaries that conduct variousother business operations. Anheuserbusch Inbev has a market cap of $86.41 billion; its shares were traded at around $53.86 with a P/E ratio of 21.1 and P/S ratio of 2.3. The dividend yield of Anheuserbusch Inbev stocks is 0.7%.
No. 3: Unilever N.V. New York Registry (UN, Financial), Add: 0.64% of the portfolio - Total: 5,064,326 Shares
Unilever is one of the world's largest consumer products companies. Unilever N.v. New York Registry has a market cap of $79.93 billion; its shares were traded at around $28.66 with and P/S ratio of 1.4. The dividend yield of Unilever N.v. New York Registry stocks is 2.8%.
No. 4: PHILIP MORRIS INTERNATIONAL INC (PM, Financial), Add: 0.64% of the portfolio - Total: 7,424,875 Shares
Philip Morris International is the international tobacco company, with products sold in over 160 countries. Philip Morris International Inc has a market cap of $95.96 billion; its shares were traded at around $51.82 with a P/E ratio of 14.3 and P/S ratio of 1.5. The dividend yield of Philip Morris International Inc stocks is 4.5%.
No. 5: Goldman Sachs Group Inc. (GS, Financial), Buy: 0.22% of the portfolio - Total: 35,650 Shares
Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net worth individuals. Goldman Sachs Group Inc. The has a market cap of $80.27 billion; its shares were traded at around $155.92 with a P/E ratio of 7.1 and P/S ratio of 1.5. The dividend yield of Goldman Sachs Group Inc. The stocks is 0.9%. Goldman Sachs Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.
Russo had maintained a small position (100 shares) in the firm for more than a decade. The decline of the stock in 2Q10 caused by the SEC law suit finally convinced him to purchase a significant larger position.
Again, his 2Q10 top purchases demonstrated mostly the theme of “eat, drink, smoke, watch TV and be merry”.
Check out Tom Russo’s stock holdings here.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Tom Russo for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
However, I found Russo quite willing to talk about his investment strategies and positions in conferences and in media appearance. Perhaps because of the heavy weighting of his portfolio in Berkshire Hathaway, he was seen in a number of occasions commenting on Warren Buffett’s investment activities. Read:
2010 Value Investing Congress Notes - May, 09, 2010
Gardner's Russo Says Mood `Upbeat' at Berkshire Meeting: Video - May, 03, 2010
Bruce Greenwald, David Winters, Tom Russo, And Bob Olstein On Bloomberg Tv Part III of III - Apr, 27, 2010
Bruce Greenwald, David Winters, Tom Russo, And Bob Olstein On Bloomberg Tv Part II - Apr, 26, 2010
Bruce Greenwald, David Winters, Tom Russo, and Bob Olstein on Bloomberg Tv Part I - Apr, 26, 2010
In GuruFocus, we have documented his investment strategy and processes in this post. Yes, he typically confines himself to the themes of “eat, drink, smoke, and watch TV”, but in the mean time, he has a large geographic reach, looking for value not just in the US, but beyond the board. In order to valuate companies from different accounting regime, Russo elected to compare Enterprise Value to EBITDA in his stock selection. Here is the note in the previous cited article:
20. Valuation process
a. Russo uses EBITDA, even though many scoff at it because it does not capture the true cost of running the business.
b. Allows Russo to compare businesses globally (depreciation numbers can vary).
21. Russo invests based on the ratio of Enterprise Value to EBITDA
a. He wants to pay a modest multiple. 8x EBITDA is a general rule of thumb but it varies by company
In Value Investing Congress this year, Tom Russo discussed his international investing strategy. Here are some notes taken by Ben Claremon:
Today is about as good a day to talk about this subject as ever. Global investing may not look good at first glance since currencies are in flux and there is turmoil abroad. But there are new parts of the world that are opening up to global companies. With all of the uncertainty in the headlines, it sounds like a good time to be value investors: when there is blood in the street.
Charlie and Warren are internationally minded even though they claim they have enough to look at in the US. You can’t forget about POSCO, PetroChina and BYD as great investments. Poor Charlie’s Almanac is now in Chinese and may be a big hit there. The Burlington North Santa Fe deal also has an international flavor.
He likes family controlled companies that have discipline and patience. Brands and balance sheet are important. These companies that have been in countries for years but now the markers are opening up more, these incumbents are entrenched and entrants may not be able to take away share. There is a long runway until profitability so you need a patient management team when going into new countries.
He started to invest in international stocks in the 1980s. The question was always, but what about the accounting? Nestle was a good example as they only provided minimum disclosure. The answer now is, as compared to what? The American system has not been much better. There has been plenty of fraud and manipulation under GAAP. But what about the currency (they have unhedged currency exposure and it has actually helped on average)? The US has had a strong currency but it is not guaranteed.
In 2008, he upped the ante when it came to international investing. Emerging market stock markets got killed and great international companies lost a lot of their market values. Most businesses that were focused on international markets got killed. But the domestic companies in the US have fewer places to invest cash flows because they only stayed within the US border. So, he sold domestic shares and bought international stocks because they went down more than the domestic stocks despite the better growth prospects. The fear was that if America stalled out then China and the other emerging markets would crash too. So, the stocks with exposure to emerging markets sold off tremendously.
Consumer products companies need to have a full product tier --good, better, best-- to compete in emerging markets. High features can lead to better profits. But the important thing is the size of the runway in a country like China in something like the diapers market.
Russo learned a lesson from the management team at Richemont (CFR.VX). He learned that you should invest cash flow into just the markets that you think are the most attractive. Accordingly, he decided to divert money away from Japan (which is losing population) to China. When Richemont went into Russia they had the option to go with a local agent. But, they wanted to build the business to last so they did not take it. They paid a lot more and understood that those fixed costs might not be recouped for many years.
But, since it is family controlled and since they don’t worry about quarterly earnings they were able to take the long term view.
This is a good times to make investment abroad. Good time to be an international investor
Tom Russo Top Purchases Last Quarter
No. 1: MasterCard Inc. (MA, Financial), Add: 2.09% of the portfolio - Total: 323,940 Shares
MASTERCARD INCORPORATED advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. Mastercard Inc. has a market cap of $26.17 billion; its shares were traded at around $201.63 with a P/E ratio of 16.8 and P/S ratio of 5.2. The dividend yield of Mastercard Inc. stocks is 0.3%.
No. 2: AnheuserBusch Companies Inc. (BUD, Financial), Buy: 1.41% of the portfolio - Total: 625,995 Shares
Anheuser-Busch Companies is the holding company parent of Anheuser-BuschIncorporated and to a number of subsidiaries that conduct variousother business operations. Anheuserbusch Inbev has a market cap of $86.41 billion; its shares were traded at around $53.86 with a P/E ratio of 21.1 and P/S ratio of 2.3. The dividend yield of Anheuserbusch Inbev stocks is 0.7%.
No. 3: Unilever N.V. New York Registry (UN, Financial), Add: 0.64% of the portfolio - Total: 5,064,326 Shares
Unilever is one of the world's largest consumer products companies. Unilever N.v. New York Registry has a market cap of $79.93 billion; its shares were traded at around $28.66 with and P/S ratio of 1.4. The dividend yield of Unilever N.v. New York Registry stocks is 2.8%.
No. 4: PHILIP MORRIS INTERNATIONAL INC (PM, Financial), Add: 0.64% of the portfolio - Total: 7,424,875 Shares
Philip Morris International is the international tobacco company, with products sold in over 160 countries. Philip Morris International Inc has a market cap of $95.96 billion; its shares were traded at around $51.82 with a P/E ratio of 14.3 and P/S ratio of 1.5. The dividend yield of Philip Morris International Inc stocks is 4.5%.
No. 5: Goldman Sachs Group Inc. (GS, Financial), Buy: 0.22% of the portfolio - Total: 35,650 Shares
Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net worth individuals. Goldman Sachs Group Inc. The has a market cap of $80.27 billion; its shares were traded at around $155.92 with a P/E ratio of 7.1 and P/S ratio of 1.5. The dividend yield of Goldman Sachs Group Inc. The stocks is 0.9%. Goldman Sachs Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.
Russo had maintained a small position (100 shares) in the firm for more than a decade. The decline of the stock in 2Q10 caused by the SEC law suit finally convinced him to purchase a significant larger position.
Again, his 2Q10 top purchases demonstrated mostly the theme of “eat, drink, smoke, watch TV and be merry”.
Check out Tom Russo’s stock holdings here.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Tom Russo for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
