Capacity to Suffer – Global Value Equity Investing – Thomas Russo,GardnerRusso & Gardner
Ideas: BRK/A, NSRGY, Pernod Ricard, SABMiller
Risk of agency cost as an outside shareholder – Family controlled family. Dedicated and patient management adds value.
Discount to intrinsic value
Management that is willing to invest behind such growth even when it burdens current EPS
NSRGY – Strong culture. “Capacity to reinvest” – Nespresso, Russian,China and India, Alcon, Novartis payment and 2011 Chinese acquisitions
Pernod Ricard – Capacity to suffer including China, Absolute,India and leading premium priced local Scotch Whiskey brand
Value investing – buying a $0.50 dollar bill, but looking to compound it quickly rather than waiting 20 years.
Capacity to reinvest – his companies are investing in geographies that are growing, however, not wasteful acquisitions.
Invest for the long term – Good way to invest! Russo barely ever sells stocks, and has owned several for close to 30 years.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) – Exemplified the capacity to suffer
GEICO – Big time grower, but on a GAAP basis it was showing a loss. Buffett was willing to buy it even though it looked like it was losing money, because each customer had a net present value of $1500
Equity index put options – $37 billion insurance policy if all the world equity markets went to zero, literally. Buffett had the ability to write this and see the world (and stock markets) almost collapse in 2009.
Extraordinarily cautious short-term deposits, fiscal year, 2007. Buffett was holding on to piles of cash despite the low returns, he was not prepared to invest in something that did not meet his criteria. Then when the financial crisis struck, buffett was able to get great deals on his investments in Goldman Sachs and General Electric for example.
GE had been doing the opposite, and were reliant on over $100 billion in short term financing through the commercial paper markets.
Special discount for our followers, October 4th, 2012 New York City value Investing congress: Save $2,200 Code: N12VW1 Expiration: 6/5/12 VIC Landing Page