A long-term investor's view on Berkshire
In last week’s ‘Wealthtrack’ interview, Tom Russo explains why he has been an avid follower of Warren Buffett since he heard him give a presentation at Stanford Business School in the early 1980s.
Tom Russo is a managing member of the investment firm Gardner Russo & Quinn, where he is responsible for their Semper Vic Partners Funds, which he started back in 1983 after listening to Buffett at Stanford. Warren Buffett’s company, Berkshire Hathaway, has been Russo’s largest position for many years and is currently around 18% of his total portfolio.
In the interview, Russo reviews the basic investment case for Berkshire Hathaway. The primary drivers of value, according to Russo, are:
- Buffett’s use of the so-called ‘float‘ from the insurance company Geico, which is used to invest in other companies (float is the insurance premiums we customers pay when we buy insurance and which the insurance companies must manage until they are paid out to the injured party).
- Continuous flow of capital (e.g. dividends) from Berkshire’s many companies, which Buffett can then allocate to the Berkshire companies that have the greatest potential for future returns.
- The tax advantage of keeping the many Berkshire companies within the same conglomerate (capital can typically be moved between companies tax-free).
- The discipline to let cash grow year after year if there are no interesting investment opportunities. This has given Berkshire a huge cash position over the last 10 years, including the ability to buy back shares for around 60 billion euros. USD in recent years, where the price (according to Buffett) has been favorable
The primary risk – according to Russo – is the change in leadership that will come when Buffett and his right-hand man Charlie Munger are no longer at the table (both gentlemen are in their 90s). However, Russo believes that this is already priced in and that Berkshire’s large cash position will allow it to buy back its own shares if there is a major drop in the share price.
Finally, Russo also offers his best investment tip (besides Berkshire): Nestlé.
“The big pitfall in investing is somebody takes an ill advised position and it goes down. I now understand it – I was wrong. When it gets back to my purchase price I’ll sell it. And then it just never does.”
– Tom Russo
Watch the full interview here:
Full transparency: At the time of publication, the author or a related party has invested in Berkshire Hathaway. The author has no positions in other companies mentioned in the article.
The author or his/her related parties have not received any payment from companies mentioned in this article, nor do they have an employment relationship with the companies mentioned.
