Compounding Machines

Archive for March 2009

Tom Russo – Columbia Business School Speech

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Here is a link to a presentation given by Tom Russo to a value investing class taught by Bruce Greenwald at Columbia Business School on February 26th. Worth watching..

http://tinyurl.com/amwxb7

Thomas A. Russo, Gardner Russo & Gardner
Thomas A. Russo joined Gardner Russo & Gardner as a partner in 1989. Eugene Gardner, Thomas Russo and Eugene Gardner, Jr., as partners, each manage individual separate accounts and share investment approaches and strategies. In addition, Thomas Russo serves as General Partner to Semper Vic partnerships. Mr. Russo oversees $4 billion through separately managed accounts and partnerships. Gardner Russo & Gardner is a registered investment adviser under the Investment Advisers Act of 1940, and is not associated with any bank, security dealer or other third party.

Mr. Russo’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.

Mr. Russo 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.

Mr. Russo’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. Mr. Russo 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.

Mr. Russo’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.

Thomas A. Russo is General Partner of Semper Vic Partners, L.P., and Semper Vic Partners (Q.P.), L.P., limited partnerships whose combined investments exceed $1 billion, along with overseeing substantially more funds through separate accounts for individuals, trusts, and endowments. He is a graduate of Dartmouth College (B.A., 1977), and Stanford Business and Law Schools (JD/MBA, 1984). Memberships include California Bar Association and Board of Visitors for Stanford Law School. Mr. Russo is a charter member of the Advisory Board for the Heilbrunn Center for Graham & Dodd Investing at Columbia Business School. He is a member of Dartmouth College’s President’s Leadership Council.

For further information on Tom Russo and his fund which has performed quite well over the years I refer you to the following presentation slides from November 2008…

http://www.darden.virginia.edu/vic/pdf/Tom%20Russo.pdf

Written by sdinvest

March 13, 2009 at 11:23 pm

Posted in Uncategorized

Young Spring & Wire Corp.

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 As readers of this blog know, I am fascinated by investments the Buffett Partnership made in the 1950s-1960s. Back then with limited capital, Buffett could invest money in virtually any company regardless of size.  For example, at year-end 1962 Dempster Mill Manufacturing was the largest position (23% of the portfolio). Dempster had a market cap at the time of $3.1 million, or about $21 million in today’s dollars. Below is another mini-case study.

The following is the Moody’s sheet from 1962 for Young Spring & Wire Corp. It was the 7th largest position at year-end 1962, or about 5% of assets.  BPL owned 19,165 shares, or about 4.5% the company. As with investments discussed previously, it is impossible to know when and at what price Buffett first purchased the stock, but he did “dance” in and out of positions more frequently back then.

Young Spring & Wire had three business lines including: automotive (seat and back springs), equipment (dump truck and trailer bodies, etc) and electronics (receivers, transmitters, amplifiers, etc.). The company had lost money in 1960 and 1961 (-$1.9 mm and -$1.4 mm respectively)  which leads me to believe this was yet another Ben Graham-type balance sheet bargain. Indeed, the company was debt-free with $3 million of cash and equivalents and net current assets of $27 per share and net tangible assets of $48.36 per share. At $25.50, the company had a market cap of $10.9 million ($76 million in today’s dollars). This investment was likely made based on the fact that it was trading below both net current asseets and tangible book value.

 I hope others find these mini case studies intersting as well.

young-spring-wire

Written by sdinvest

March 13, 2009 at 8:09 pm

Posted in Uncategorized