Thomas Russo overseas over $6 billion as a general partner of Semper Vic Partners and Semper Vic Partners(Q.P) limited partnership along with overseeing in discretionary individually managed accounts for individuals, trusts and endowments. Russo graduated from Dartmouth College (BA, 1977) and Stanford Business and Law Schools (MBA/JD, 1984).
Russo’s Semper Vic Partners fund has returned a cumulative 2,754.9 % versus 979.9 % for the S&P 500.
1. Can you briefly describe the concept of global value investing and who influenced you?
Tom Russo: I have several billion dollars under management, which I invest in global equities. It was for the longest time a style that was not practiced by anyone. It was global, not local or international, so that was already confusing to most consultants. And then there was a long-term focus with taxable investors in an effort to abide by Warren Buffett’s advice to invest long term and then harvest the profits from that over a lifetime. This is a very unusual aspect of what we do and it is mainly unusual because most people cannot abide by doing nothing for long periods of time. Most people find the working environment leads them to do something, so they are much more active than the necessarily need to be.
So I would say global and unusual. It is less so now, though. There are more people in this world of global investment. We see the incredible rise in relevance of non-US investments because of the relative growth in GDPs around the world. I was drawn into this style in the early 1980s. The concept of international came to me through Stanford Business School when Professor McDonald, who taught my investment class, said “Do not be provincial.” Ninety-Five percent of the world does not live in the United States. Figure out a way to make investments that recognize the promise of that 95 % of the world. That happens all the time. The US market was far bigger than any of the other markets, and we had a higher GDP than relative to the world now, but over time the advice to go abroad early in my career has made all the difference in my career.
2. What is your approach to value investing?
Think about the goal of investing, which stems from the value approach of Warren Buffet. That is to find 50-cent dollar bills. That is an okay approach. It is hard enough to do, but it is an okay approach if you find 50-cent dollar bills and you are indifferent to taxation and you can somehow close out that discount quickly.
I think you do not really care about the dollar bill very much if you are like me, since as a long-term investor what you really want to do is find a 50-cent dollar bill that will grow over the years. And it is that growth component that provides the returns. We have been fortunate to harness the power of such growth through our international franchise. Buying dollar bills at 50 cents provides a measure of safety. Finding strong companies whose owner (mimics?) management, and is capable of investing to grow that dollar bill (underwritten?) for future returns.
3. What do you define as a powerful brand? Is it a moat?
Tom Russo: Nestle is our largest position, followed shortly by Phillip Morris International. We also own Richemont, which is a Swiss Company that has global brands such as Cartier and Dunhill; Heineken, which we first invested in 1989; followed by SABMiller, which I added to my portfolios in 2009; followed by Pernod Ricard, which I invested in probably 2003.
All of these businesses have powerful goodwill associated with their global brands. And it is the ability that they have enjoyed over the past 25 years to increasingly exploit that goodwill in growing parts of the world because of the rise of consumerism and the rise of open markets that has given our portfolio a really strong tail wind.
Additionally, it is the fact that the management of those companies is very often guided by the wishes of their founding families and owners that have made the investment decision. I think by those managements, better in terms of guidance and advice from owners than the traditional American Company has, where so often management reigns without constraint by any kind of owner-mindedness.
And so we have had the privilege of global brands to invest behind by managements who are encouraged to make thoughtful owner-minded investments by the fact that the company’s founding families are still involved in my portfolio to a most unusual extent.
When management makes those investments, they must have the capacity to suffer. They have to suffer during the start-up period of those investments because they are not necessarily linked to at the hip with the Wall Street expectations of smooth and steady quarters, but they are able to withstand the burden of the investment cycle. It is inevitably certain that profits are low or non-existent during these early years. And if you do not have the capacity to suffer through that period, you will shy away from making the accurate amount of investment. Your management will under-invest at a time when they have set an advantage and will allow competitors to come into the market.
I think having family-owned businesses at the helm of our companies in many instances has stretched out our management’s horizon. It has given more courage to invest even when the reputed earnings of our company may be temporarily burdened by start-up losses from these investments.
4. Do you think going international has given you a strong lead against other investors?
Tom Russo: I think that going international has given us an enormous leg up because we have increased the number of brands that we get behind, we increased the management focus on owner-mindedness and we increased the capacity for them to invest. I can give you a bunch of examples of how I think our portfolio companies are better today because during periods of time when there is competition, they do not shy away from making investments because of their burdens on income statements. Our companies stay the course, suffered through those early burdens and effects on their income statements or report of profits. And then our companies have enjoyed the wealth that has grown from that capacity to suffer.
As an international (investor in?) brands, for managements have been well positioned for markets that have opened up over the past three decades. I have exposed us and our business to substantial population growth in the developing and emerging markets in the developing and emerging markets and also new populations if you think about places like India and China, which were closed to our companies just two decades ago. They now represent nearly three billion consumers to which we actually market products.
5. Can you give examples of the pricing powers of these companies?
Tom Russo: I think our businesses have shown over time that they have pricing power which is because of the strength of the brand. That is extremely important long term because it is that pricing power that accompanies a product’s perceived indispensability in the minds of the consumer that allows our business to raise