(GuruFocus, February 10, 2010) GuruFocus has started recently to track the portfolio of Tom Russo. Russo is a partner of Gardner Russo & Gardner, a firm that he co-founded in 1989. According to a presentation [1] Russo gave on November 7, 2008 during the Value Investing Conference that took place in Darden School of Business, University of Virginia, the firm manages about $5 billion, mostly in individually managed client accounts.
A couple of percent points make a huge difference when the returns are spanned over a period of almost half a century. No information for more recent period is available at this time, but it does not stop us from concluding that Russo was able to generate return over a long period of time that beat the general market. Especially the return was after all the fees and expenses.
Page 4 of the Darden Value Investing Conference Presentation [1] stated in more detail:
No. 1: Berkshire Hathaway Inc. (BRK-A), Weightings: 16.59% - 3,292 Shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $118.07 billion; its shares were traded at around $111700 with a P/E ratio of 33.9 and P/S ratio of 1.1. Berkshire Hathaway Inc. had an annual average earning growth of 27.1% over the past 10 years. GuruFocus rated Berkshire Hathaway Inc. the business predictability rank of 3-star.
In the following Bloomberg interview that was aired on January 20, 2010, Tom Russo talked with Betty Liu about Berkshire Hathaway Inc.'s purchase of Burlington Northern Santa Fe Corp. Russo, speaking from Omaha, Nebraska, also discusses the Berkshire shareholder meeting, where investors will vote on a proposed stock split, and Warren Buffett's reaction to Kraft Foods Inc.'s acquisition of Cadbury Plc.
No. 2: PHILIP MORRIS INTERNATIONAL INC (PM), Weightings: 15.56% - 6,354,568 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 $89.23 billion; its shares were traded at around $46.85 with a P/E ratio of 14.6 and P/S ratio of 1.4. The dividend yield of Philip Morris International Inc stocks is 5%.
Russo increased his holding in Philip Morris International in 4Q09.
No. 3: Comcast Corp. Special (CMCSK, Financial), Weightings: 7.9% - 9,709,005 Shares
Comcast Corporation is principally involved in the development, management and operation of broadband cable networks, and in the provision of electronic commerce and programming content. Comcast Corp. Special has a market cap of $42.66 billion; its shares were traded at around $14.62 with and P/S ratio of 1.2. The dividend yield of Comcast Corp. Special stocks is 1.9%. Comcast Corp. Special had an annual average earning growth of 46.5% over the past 5 years.
Russo sold about 167 thousand shares of CMCSK during 4Q09.
No. 4: Martin Marietta Materials Inc. (MLM, Financial), Weightings: 7.64% - 1,682,615 Shares
Martin Marietta Materials is producer of aggregates for the construction industry, including highways, infrastructure, commercial and residential. Martin Marietta Materials Inc. has a market cap of $3.38 billion; its shares were traded at around $75.95 with a P/E ratio of 27.7 and P/S ratio of 1.6. The dividend yield of Martin Marietta Materials Inc. stocks is 2.1%. Martin Marietta Materials Inc. had an annual average earning growth of 8.3% over the past 10 years.
This aggregates producer does fit the theme of “kitchen Cupboard and international”. There must be something special about this company that attracts Russo to invest so much money in the company (about $150 million at the end of 2009).
No. 5: Wells Fargo & Company (WFC, Financial), Weightings: 7.48% - 5,457,444 Shares
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services across North America as well as internationally. Wells Fargo & Company has a market cap of $136.56 billion; its shares were traded at around $26.71 with a P/E ratio of 14.6 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Company stocks is 0.8%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years.
Russo sold about 0.7 million shares of WFC during 4Q09.
No. 6: Altria Group Inc. (MO, Financial), Weightings: 6.54% - 6,552,465 Shares
Altria Group is the parent company of Philip Morris USA, U. Altria Group Inc. has a market cap of $40.33 billion; its shares were traded at around $19.46 with a P/E ratio of 11.1 and P/S ratio of 1.7. The dividend yield of Altria Group Inc. stocks is 7%. Altria Group Inc. had an annual average earning growth of 3.4% over the past 10 years.
Russo bought 150 thousand more shares of MO during 4Q09.
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Sources:
1. Tom Russo Presentation in Value Investing Conference, Darden School of Business, University of Virginia, November 7, 2008
2. Tom Russo On Global Value Investing (Part I), Value Investor Conference, Los Angeles, 2006
3. Tom Russo On Global Value Investing (Part II), Value Investor Conference, Los Angeles, 2006
Outstanding Performance
A good proxy to Tom Russo’s investment performance is that for the Semper Vic Partner, L.P., a partnership Russo manages as a general partner. Russo included a page that summarizes the performance in Page 5 of the above mentioned presentation [1]. The annualized return to limited partners from 1984 to September 30, 2008 was 15.8%, compared to the 12.1% annual return of Dow Jones Industrials and 11.0% of S&P 500 during the same period.A couple of percent points make a huge difference when the returns are spanned over a period of almost half a century. No information for more recent period is available at this time, but it does not stop us from concluding that Russo was able to generate return over a long period of time that beat the general market. Especially the return was after all the fees and expenses.
Investment Strategy
In Page 4 of the Darden Value Investing Conference presentation, Russo revealed his investment strategy:Mr. Russo’s investment Philosophy emphasizes return on invested capital, principally through equity investments. His approach to stock selection stresses two main points: value and price. While these would seem to be obvious key considerations in any manager’s approach, it is equally obvious that all too often they are either misjudged or, perhaps more frequently, simply not viewed together.
Mr. Russo looks for companies with strong cash-flow characteristics, where large amounts of “free” cash flow are generated. Portfolio companies tend to have strong balance sheets and a history of producing high rates of returns on their assets. The challenge comes in finding these obviously desirable situations at reasonable or bargain prices.
Kitchen Cupboard and International
In a speech given to another event, the Value Investor Conference in Los Angeles in 2006 [3], Russo summarized the companies he likes to invest in:I'd like to own what you see when you open up someone's kitchen cupboard, and you see all the brands that are lined up…... And they're there for a reason, but they may not even be able to explain to you. But my goal would be an investment in all of those that show up regularly.
Page 4 of the Darden Value Investing Conference Presentation [1] stated in more detail:
Russo’s investment approach is focused on a small number of industries in which companies have historically proven to be able to generate sustainable amount of net free cash flow. (These industries typically have included food, beverage, tobacco, and broadcasting/media). This fairly narrow approach reflects his training and discipline at the Sequoia Fund in New York, where he worked from 1984 to 1989. Mr. Russo tries to limit risk by not paying too large a multiple of a company’s net free cash flow in light of prevailing interest rates. He attempts to broaden this otherwise narrow universe by including companies with smaller market capitalizations and companies in similar industries based abroad.It seems the international investments that he made over the years brought him the reputation of a great international investor, as the topics for both speeches were on international investing. As he stated in his speech [2], international investments accounts for about 40% of his funds, and usually he invests in overseas stocks when he finds those foreign based companies are sold at discount as compared to the US counterparts.
Sector Weighting
GuruFous tracks Tom Russo’s domestic equity portfolio only. The sector weightings as of December 31, 2009 are presented in the table below. Consumer Goods and Consumer Services take the lion share. Financials (mostly Berkshire Hathaway) are also very heavily featured in the portfolio:| Industry | 2009-09-30 | 2009-12-31 |
|---|---|---|
| Technology | 0.5% | 0.5% |
| Financials | 32.2% | 30.9% |
| Utilities | 0.1% | 0.1% |
| Telecommunications | 0% | 0% |
| Consumer Services | 18.2% | 17.8% |
| Health Care | 1.7% | 1.1% |
| Consumer Goods | 36.8% | 39.3% |
| Industrials | 9.1% | 8.7% |
| Oil & Gas | 1.4% | 1.5% |
Tom Russo Top Holdings
GuruFocus has yet been able to track Investment Gurus’ overseas holdings, so the best we can do is present his domestic holdings under name of “Tom Russo” in our website. Here are the top holdings:No. 1: Berkshire Hathaway Inc. (BRK-A), Weightings: 16.59% - 3,292 Shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $118.07 billion; its shares were traded at around $111700 with a P/E ratio of 33.9 and P/S ratio of 1.1. Berkshire Hathaway Inc. had an annual average earning growth of 27.1% over the past 10 years. GuruFocus rated Berkshire Hathaway Inc. the business predictability rank of 3-star.
In the following Bloomberg interview that was aired on January 20, 2010, Tom Russo talked with Betty Liu about Berkshire Hathaway Inc.'s purchase of Burlington Northern Santa Fe Corp. Russo, speaking from Omaha, Nebraska, also discusses the Berkshire shareholder meeting, where investors will vote on a proposed stock split, and Warren Buffett's reaction to Kraft Foods Inc.'s acquisition of Cadbury Plc.
No. 2: PHILIP MORRIS INTERNATIONAL INC (PM), Weightings: 15.56% - 6,354,568 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 $89.23 billion; its shares were traded at around $46.85 with a P/E ratio of 14.6 and P/S ratio of 1.4. The dividend yield of Philip Morris International Inc stocks is 5%.
Russo increased his holding in Philip Morris International in 4Q09.
No. 3: Comcast Corp. Special (CMCSK, Financial), Weightings: 7.9% - 9,709,005 Shares
Comcast Corporation is principally involved in the development, management and operation of broadband cable networks, and in the provision of electronic commerce and programming content. Comcast Corp. Special has a market cap of $42.66 billion; its shares were traded at around $14.62 with and P/S ratio of 1.2. The dividend yield of Comcast Corp. Special stocks is 1.9%. Comcast Corp. Special had an annual average earning growth of 46.5% over the past 5 years.
Russo sold about 167 thousand shares of CMCSK during 4Q09.
No. 4: Martin Marietta Materials Inc. (MLM, Financial), Weightings: 7.64% - 1,682,615 Shares
Martin Marietta Materials is producer of aggregates for the construction industry, including highways, infrastructure, commercial and residential. Martin Marietta Materials Inc. has a market cap of $3.38 billion; its shares were traded at around $75.95 with a P/E ratio of 27.7 and P/S ratio of 1.6. The dividend yield of Martin Marietta Materials Inc. stocks is 2.1%. Martin Marietta Materials Inc. had an annual average earning growth of 8.3% over the past 10 years.
This aggregates producer does fit the theme of “kitchen Cupboard and international”. There must be something special about this company that attracts Russo to invest so much money in the company (about $150 million at the end of 2009).
No. 5: Wells Fargo & Company (WFC, Financial), Weightings: 7.48% - 5,457,444 Shares
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services across North America as well as internationally. Wells Fargo & Company has a market cap of $136.56 billion; its shares were traded at around $26.71 with a P/E ratio of 14.6 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Company stocks is 0.8%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years.
Russo sold about 0.7 million shares of WFC during 4Q09.
No. 6: Altria Group Inc. (MO, Financial), Weightings: 6.54% - 6,552,465 Shares
Altria Group is the parent company of Philip Morris USA, U. Altria Group Inc. has a market cap of $40.33 billion; its shares were traded at around $19.46 with a P/E ratio of 11.1 and P/S ratio of 1.7. The dividend yield of Altria Group Inc. stocks is 7%. Altria Group Inc. had an annual average earning growth of 3.4% over the past 10 years.
Russo bought 150 thousand more shares of MO during 4Q09.
Conclusion
Tom Russo’s domestic stock portfolio is very concentrated. He tends to hold his stocks for a long time too. If you want to learn about his international investments, read the sources that I listed at the end of this article.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.
Sources:
1. Tom Russo Presentation in Value Investing Conference, Darden School of Business, University of Virginia, November 7, 2008
2. Tom Russo On Global Value Investing (Part I), Value Investor Conference, Los Angeles, 2006
3. Tom Russo On Global Value Investing (Part II), Value Investor Conference, Los Angeles, 2006
