Tom Russo on Beverage Industry, Tesla, and QE

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Tom Russo on Beverage Industry, Tesla, and QE

Tom Russo spoke at the Value Investor Conference this weekend. Earlier, we brought you coverage of the event, which featured many famous value investors. Tom Russo was kind enough to answer some questions we had for him about macro outlook, the beverage industries and some of his favorite positions. Below is our Q&A with Mr. Russo.

Questions asked to Tom Russo on Behalf of ValueWalk by Ryan DeVitt 

What do you wish you had known when you first became an investor that you know now?

Don’t be provincial – look abroad – an earlier activity around the portfolio weighting process – willingness to recognize fundamental industry changes – little ability to use past as surrogate for future – ultimately the story of willingness to sell when fundamental uncertainty falls on a business

 

Does your fund hold non equity securities/ do/how do you hedge/risk management?

Tom Russo (TR): Not now, hasn’t really – largely because of duration with equities – have the ability for the money to stay “at work” businesses don’t tend to have long dates obligations – biggest risk to hedge against are agency costs- excess pay – bad acquisitions  – goal to meet is to make sure mgmt. running business over time put stockholders first – regulatory legal risk with sin stocks

Beverage co- particular reason for concentration in your fund?

TR:

  • The Coca-Cola Company (NYSE:KO)/PepsiCo, Inc. (NYSE:PEP) vs alcohol

Brands- economic structure – flavor and consistency of jack daniels

  • Historically The Coca-Cola Company (NYSE:KO)/PepsiCo, Inc. (NYSE:PEP) more expensive- haven’t had same public recognition of potential for business to be challenged by virtue –  someday there will be a sugar regulatory reset – will be stronger going forward – valuation higher

What do you see as biggest macro risk going forward- Congress/debt, Euro, or china?

TR: Lack of possible capacity to move forward for good of society in Congress

Extraordinary large culture of entitlement in USA that puts brakes on economic engine in some ways – up against global competition, higher fixed cost economic machine due to responsibility of clean water in and out of distillery/brewery – must prove environmental concerns to consumer – otherwise lose out over time to disrespect

 

Thoughts on QE- Fed, ECB, BoJ printing- how does it unwind in your opinion? Market impacts?

 

TR: Very risky – US leading the charge on this – flooding market with liquidity – congress strapped – raising revenue or cutting expenses – fed suggesting either will subvert efforts by fed for economic vitality

  • Unwinding: if employment can grow without price increases- may be smooth skating – hard balance to strike

 

How do you feel about new tech – Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp (NASDAQ:SCTY), cloud computing

TR: General observation – pioneers end up with arrows in their chest – dangerous pursuit – those who follow may reap the benefit –

How do you evaluate new positions? By committee, only by self?

TR:He runs, with his money side by side – largest partner semper vic – manage as his own money – weighting and selection personal – advise investors to have similarly high conviction managers

New American International Group Inc (NYSE:AIG), Bank of America Corp (NYSE:BAC) investments- are you bullish on US? Do you still see opportunities despite risk premia seemingly as high as it can get?

Flow of look across investments – how they compare with what already held in the portfolio

Thank you for your time Tom Russo

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