In an episode of the Latticework Podcast, presented by MOI Global, Shai Dardashti speaks with Tom Russo about the role of global investing and mental models in a changing world.
Tom Russo joined Gardner Russo & Gardner as a partner in 1989. He became the managing member of the firm in 2014. Tom and Eugene Gardner, Jr. each manage individual separate accounts and share investment approaches and strategies. In addition, Tom serves as the managing member of the general partner to Semper Vic partnerships. Tom oversees more than $10 billion in assets.
Tom’s investment philosophy emphasizes return on invested capital, principally through equity investments. His approach to stock selection stresses two main points: value and price. While these would seem to be obvious key considerations in any manager’s approach, it is equally obvious that all too often they are either misjudged or, perhaps more frequently, simply not viewed together. Tom looks for companies with strong cash-flow characteristics, where large amounts of “free” cash flow are generated. Portfolio companies tend to have strong balance sheets and a history of producing high rates of return on their assets.
The challenge comes in finding these obviously desirable situations at reasonable or bargain prices. Tom’s investment approach is focused on a small number of industries in which companies have historically proven to be able to generate sustainable amounts of net free cash flow. (These industries typically have included food, beverage, tobacco, and advertising-supported media.) This fairly narrow approach reflects his training and discipline at the Sequoia Fund in New York, where he worked from 1984 to 1988.
Tom tries to limit risk by not paying too large a multiple of a company’s net free cash flow in light of prevailing interest rates. He attempts to broaden this otherwise narrow universe by including companies with smaller market capitalizations and companies in similar industries based abroad. Tom’s goal is one of an absolute return rather than a relative return, and he continues his long-term investment objective of compounding assets between 10 and 20 percent per year without great turnover, thereby realizing a minimum amount of realized gains and net investment income.
Tom is an instructor at Latticework 2017.
An edited transcript of the conversation is available to members of MOI Global.
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