Tom Russo’s letter to Semper Vic Partners investors for the second quarter ended June 30, 2016.


Results for Semper Vic Partners, L.P. for Second Quarter 2016, appear below, along with cumulative performance since L.P. conversion in July 1990. Partnership results are presented net of advisory fees and are compared to market indices whose returns include reinvested dividend income:

Tom Russo Semper Vic Partners

Semper Vic Partners

Investment Position and Outlook

While my “global value” equity investors have generally enjoyed positive results year-to-date, there is little about today’s global political forces and/or financial marketplaces that seem either normal or particularly reassuring. One need not cast too distant a glance to see evidence of this in all directions, including the surprise Brexit vote in the United Kingdom, an attempted coup in Turkey, impeachment of Brazil’s president, ISIS terrorist attacks throughout Europe, copycat massacres throughout both the developed and developing markets, and the discrediting of the political process in the United States (e.g., revelations of the Democratic Party’s efforts to distort truth regarding a final candidate and Republican Party’s inability to chaperone candidate conduct during countless debates).

  • DIS 15-Year Financial Data
  • The intrinsic value of DIS
  • Peter Lynch Chart of DIS

[drizzle]Indeed, the list above, as long a list as it is, probably does not nearly capture the full extent of the pressures which we seemingly confront as we commit capital. Fortunately, however, as Lord Rothschild once opined over a century ago, the best time to invest is when there is blood in the streets, when the very essence of capitalism is called into question and institutions, which were long relied upon to channel conduct, fall away. Though we are not remotely close to fully Rothschildean investment conditions, we are seeing opportunities open up as investors extrapolate some of today’s most violent disruptions out into the future beyond the likely time some of today’s disruptions will last.

My job as investor, however, is to recognize that investing is a long-term activity. As I have focused for my “global value” equity investors over several decades, my goal is to direct your capital to businesses imbued with the “capacity to reinvest” their cash flows from existing operations into new geographic markets and/or into adjacent categories in existing markets.

For our reinvestment, I hope to find unfair competitive advantages by focusing on companies who have privileged opportunities when approaching reinvestment. Such advantages can arise from the strength of the pre-existing appeal their brands possess in markets into which they wish to invest behind brand activation. Another such advantage may be the cash which they are free to deploy from cash flow arising from markets in which they already operate profitably and in which additional investing would not yield optimal returns. Clearly, family control of boards help underwrite management’s capacity to make long-term investments.

When making such investments on clients’ behalf, I am constantly challenged to weigh the prospects for the portfolio holdings which currently drive your returns with prospects for potentially new portfolio holdings that might seem brighter, brassier, and even more promising. However, through my own early experience and through countless observations from investors whom I respect who came before me, I have grown to greet such pitches with a critical examination. As I do so often when acting in the investment world, I take inspiration from Berkshire Hathaway when formulating my own response to seemingly alluring new pitches.

“And Then What?”

Pilgrims lucky enough to attend the Berkshire Hathaway annual meeting enjoy, in addition to Warren Buffett’s well-recognized pearls of investment wisdom, profound insights offered by his long-standing partner, Charles T. Munger. While Mr. Munger freely reserves the right to proclaim that “he has nothing to add,” when Mr. Munger chooses to add his comments, they are well worth the wait.

“And then what” are three words Mr. Munger shared with investors that he claims has regularly kept both he and his partner away from seemingly good-sounding investments that subsequently fail to reward. The simplest way in which to stay clear of ideas that promise short-term pleasure is to ask “and then what” to make sure that knowable, long-term pain is not destined to follow.

Mr. Munger’s partner, Warren Buffett, no slouch on his own for deep and pithy investment insights, provides some added thoughts to Mr. Munger’s “and then what” when he describes predictable, irrational behavior in the context of investing. Whenever asked at annual meetings to explain why one or another seemingly catastrophic investment occurred, Mr. Buffett generally responds that he finds it “amazing how easily people are willing to risk what they have and they need for what they don’t really need and very likely cannot have.”

A great example of Mr. Buffett’s observation occurred during the late innings of the Web 1.0 bubble in 1999 and early 2000 when the Bass family was romanced into investing into a handful of high-tech darlings of the day. Indeed, with the vast bulk of Bass family wealth tied up in low tax cost basis shares of Disney (NYSE:DIS), the family needed to heavily margin those shares to generate funds to deploy into this small basket of then Internet darlings that had showed hyperbolic returns prior to luring in the Bass family.

Almost no sooner than the family, aided in the effort by their then favorite investment bank, had margined billions of dollars received by pledging their Disney shares into these new holdings did the music of Wall Street’s Web 1.0 waltz abruptly stop. Indeed, the stop was so abrupt that the Bass family brokers had the duty to sell off billions of dollars of Bass holdings in Disney shares to cover the margin call brought about due to the collapse of the share price of the former internet darlings that had entered into an equity market free fall.

The Bass family indeed had and needed a fortune in Disney shares that came about because of extraordinarily wise investments decades earlier. The Bass family clearly did not need to pledge their life savings securely placed in Disney shares to chase extraordinarily overvalued Internet company shares. They were aided in this effort by brokers who arranged vast margin loans to accomplish this unnecessary and risky transaction. Nobody within the family had the sense to ask Mr. Munger’s simple question, “and then what” when contemplating putting on such risky investments at such a late stage in the first internet market bubble.


In many ways the British people, I fear, have been treated to a similar hand by proponents of Brexit. Much like the brokers who convinced the Bass family that what they had and they needed was no longer enough, so too did pushy and promotional proponents of Britain’s exit from the European Union (EU) place the British people in a very real position of risking what they had and they needed regarding their trade relations with the EU for something they did not need and could not have.

The British did not need the exit from the EU. Clearly, however, a sufficient percentage of Britain felt sufficiently disaffected to seek change broadly as they did not perceive that what they had was all that they needed.

Indeed, the promoters of the concept of Brexit promised the British people that

1, 234  - View Full Page