Passion and patience are MVPs of value investing game

Featured Events | Oct 31, 2016 | Gabelli School of Business

What would happen if your idol were your professor?

That is exactly what happened to Thomas A. Russo.

As a student at Stanford University’s Graduate School of Business, Russo got to learn from the best in value investing: Warren Buffett.

At his presentation at Rose Hill, sponsored by the Gabelli Center for Global Security Analysis, Russo explained that when he was at Stanford in 1984, old-school investing was transitioning into new, exciting methods like value investing.

“In order for investments to work, they take a long time. The trouble with Wall Street is that they want something to work on time. Value investing requires more patience.”

Today, Russo is channeling what he learned about value investing from Buffett and other teachers into his role as the managing member of Gardner Russo & Gardner LLC, where he oversees more than $9 billion through separately managed accounts, consisting of solely international companies.

While traditional investors will say the ticket to the trade is diversification, Russo learned “there is value in concentration.” More than 70 percent of his investments are in a very small number of companies, as he chooses to focus his efforts on global brands with the ability to grow exponentially due to a loyal fan base. After all, fans will propel a business forward, even if it is beyond their hometown.

Why global businesses?

“Only 4 percent of the world’s population is within the United States. The other 96 percent has needs. Value investing can help fulfill them,” he explained.

Someone can’t just walk through the door and know what those needs are, though.

To that end, Russo asked everyone in the room a seemingly bizarre question. “How many of you have a favorite cricket player?” Not a single hand was raised. Who cares about cricket? Actually, 24 million people care.

“If you want to have a global career, especially if you are trying to uncover the 50-cent dollar bills, you can’t just know the business. You need to be cognizant of the customers’ lifestyle.”

That, he said, was something he learned from Buffett. Being a game-changing value investor requires a deep level of passion for everything surrounding the business. It’s why Buffett told his class the best thing they can do is find what fascinates them within the world of global business and stick to it.

“Diversification is another word for lack of research,” Russo opined.

His career has evolved substantially since sitting in a classroom in Palo Alto, but he tied the art of value investing back to a college education.

“You are investing your time and money into your education with the hope of a long-term benefit. It’s exactly the same model that we use with the businesses we are thinking of investing in. If you focus on what you want with the long-term goals in mind, you create a high margin of safety, or, in other words, a high likelihood to succeed.”

The Gabelli Center’s next speaker event is Tuesday, November 1, at 5:15pm. Jeff Gramm, author of Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, will speak about his new book, and all attendees will receive a complimentary copy.