Global Value Investing – Thomas Russo

Thomas Russo describes the important ingredients of his tax-efficient, long-term buy-and-hold approach to “global value” equity investments. He touches upon the two aspects most important to his investments: 1. Reduction of Agency Costs + 2. The “Capacity to Reinvest”

Personal Lessons Learned (The 5 C’s)

  • Compound Interest
  • Character
  • Culture
  • Capacity to do Nothing
  • Cultivate a Folly (have something that makes no sense that just adds pure enjoyment)

Capacity to Reinvest

  • Durable competitive advantage – wide and deep moats
  • Global brands
  • Population growth
  • Consumer disposable income growth
  • Global management (Multilingual + multicultural)

Agency Cost

  • Arise the inability to invest the right amount
  • Vast reliance on stock options as compensation (management incentive to make short-term decisions to push for short term results, to drive value for their stock options)
  • Vicious cycle that management of company must meet reportable numbers, then wall street with recommend your company, then drive up your share price

Portfolio Allocation

  • 70% holdings are non-US
  • 70% are in the top 10 holdings
  • Top 3 holdings are 30% of the assets
  • 65% of companies are controlled by the founding families

Equity Investing Factors Russo Fears

  • Agency costs and misalignment of interests
  • Lack of natural reinvestment opportunities (Domestic only, Letting cash build)
  • Understanding what is enough (not to overreach)
  • Corruption
  • Taxation + Tax Reforms
  • Regulations (e.g., Vape)
  • Inflation
  • Difficult cultural reference (language barrier to get information)
  • Migration to passive management

Mistakes of the Past

  • Mistakes of Commission
  • Mistakes of Omissions (e.g., Threats of litigation)