Sunday, 14 April 2013

An Interview with Tom Russo

In a Spring 2012 interview with the Graham & Doddsville newsletter, Tom Russo offered his thoughts about investing.  He explains an interesting quality that he looks for in management: "the capacity to suffer."  What he means is that he admires managers that ignore short-term results - or at least don't always feel the need to completely maximize every penny of earnings in the current quarter or year - while investing for the long-term.  For example, consumer products companies presently making investments in fast-growing areas like Africa, which do not earn stellar - or, in some cases, any - returns now, but are likely to in the future.  Rather than dipping a cautious toe in new waters, Russo advocates an all-in approach, citing Starbucks' aggressive but successful foray into China.

Russo ventures into a fascinating but rarely-discussed matter in investing: the power of gut feelings.  He confides that he had a funny feeling about the managers at Diamond Foods, though he didn't short the company's shares.  Surprisingly, he offers an anecdote from none other than the ultra-rational, fact-obsessed (at least in business-related matters) Charlie Munger, who sold out of Freddie Mac shares long before they peaked, because something in his intuition said he should.

Russo, who once worked at the Sequoia Fund with the late super-investor Bill Ruane, focuses in part on multi-national companies operating globally, and has interesting things to say about the need for ongoing opportunities to reinvesting in an existing business.  Clearly an expert on such businesses, Russo addresses the fundamental strength of Brown-Forman, the commodity-related challenges facing Kraft, the striking power of Pepsi's Frito-Lay business, and more.  In addition, he holds forth about the attractive economics of aggregates firms, and the merger between Vulcan Materials and Martin Marietta; discusses his philosophy on investing in global firm headquartered outside of the US; offers several reasons to avoid short-selling; and affirms the notion that it's easier to be independent by ignoring Wall Street, even if you are located in New York.

Source is here.

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