Famed Wall Street Investor Bets 80% of Firm on These Stocks

Tom Russo is the Managing Member and Chairman of Gardner, Russo & Quinn, a Lancaster, Pennsylvania-based RIA. His firm provides discretionary investment management to approximately 1,579 accounts and manages $10.06 billion in assets. 

Key Points About This Article:

• While value investing has remained underfollowed in recent years, Pennsylvania RIA Gardner, Russo & Quinn LLC remains true to this investment strategy. 
• It has held Berkshire Hathaway (NYSE:BRK.B | BRK.B Price Prediction) for 43 years, delivering consistent returns for its investors.
• Warren Buffett’s holding company might get tagged with the “conglomerate discount,” but there are many reasons to keep holding it for another 43 years.
• The right cash back credit card can earn you hundreds, or thousands of dollars a year for free. Our top pick pays up to 5% cash back, a $200 bonus on top, and $0 annual fee. Click here to apply now  (Sponsor)

Russo has worked at Gardner, Russo & Quinn, managing its clients’ assets since 1989. Before that, he was at Ruane, Cuniff & Company, and Cumberland Associates. Although he got a JD/MBA in 1984, he’s always worked as a portfolio manager. 

The firm’s commitment to value investing, combined with an office halfway between Philadelphia and Harrisburg, makes him less known than some of the country’s best-known investors. But that doesn’t mean he’s any less successful. 

In a 2012 speech to the students of the Ivey Business School at Western University in London, Ontario, Russo discussed his investments. It comes down to four things.

1. He invests in underpriced companies. 
2. He looks for businesses where you can reinvest in because of their worldwide opportunities to grow.
3. These are companies that can withstand tough times and
4. They have excellent long-term prospects. 

Russo aims to deliver absolute returns for his clients by finding businesses that meet these four criteria and trade at a discount to their intrinsic value. 

At the end of December, Gardner Russo & Quinn’s 13F holdings report showed $8.85 billion was invested in 68 stocks. Approximately 80.3% of these assets were invested in just 10 stocks, with Berkshire Hathaway (NYSE:BRK.B) the firm’s top holding, accounting for 21% of its assets.      

If you’re into Berkshire, consumer stocks, and large financial institutions, Tom Russo is the investor to follow for long-term success. 

Here’s why. 

It’s Owned Berkshire Hathaway Stock Since Q1 2001

There are stocks you hold for 3-5 years and ones you hold forever. Berkshire is the latter for Russo and his team. 

As WhaleWisdom.com points out, the average price paid by Gardner, Russo & Quinn is $97,985 per Class A share and $84.44 per Class B. Both are worth considerably more today. 

The CAGR (compound annual growth rate) for Class A shares is 9.2%, and for Class B, it is 8.0%. While that might not sound like much, the S&P 500 gained 6.6% over the same period. 

Hall of Fame MLB pitcher Tom Seaver said, “In baseball, my theory is to strive for consistency, not to worry about the numbers. If you dwell on statistics you get shortsighted, if you aim for consistency, the numbers will be there at the end.” 

I’m sure Warren Buffett and Tom Russo would agree with that sentiment. 

Why Has Russo Owned Berkshire Hathaway for So Long?

In the introduction, I mentioned four things the portfolio manager looks for in his investments. The third point is significant about a business’s ability to withstand tough times. 

Russo discussed this subject in a speech at the Yale Club of NYC in December 2022. He does not suggest that shareholders and investors should suffer but that a company’s management should have the capacity to suffer. 

“The capacity to suffer relates to the fact that when managements spend the right amount of money to develop long-term competitive advantage in desiring to build their intrinsic value on a per-share basis, they are going to end up in period where that investment weighs negatively or lumpily on the reported profits,” Russo said. 

“Lumpy investment expense is something most of Wall Street does not relish. It likes smooth and predictable. Our companies are unfettered by a requirement to have those conditions necessarily apply because they so often have families still running the businesses through public company management but with the goal of increasing the family’s wealth.”

There’s a first clue. 

Russo leans toward family-controlled enterprises because they think 10 years out rather than 10 minutes. Although Berkshire isn’t family-controlled in the traditional definition, Buffett’s put virtually all of his wealth in the company, so there’s no backup plan if things fall to pieces. 

Fortunately for Buffett and his shareholders, things have worked out fine. 

Russo’s Actually Owned Berkshire Since 1981

As is often the case with long-time holdings, the information for when an investor first bought a stock can get distorted. While WhaleWisdom says Q1 2001, Russo said in the Yale Club speech that it was in 1981 that it first acquired Berkshire stock nearly half a century ago. 

Russo elaborated on what it means to reinvest.  

“We do deploy capital for a very, very long time. The reason those businesses are as they are in the portfolio is that we believe they have the capacity to redeploy their free cash flow in an unprecedented manner because doing so drives the value of their shares.”

Lastly, Russo argues that Berkshire Hathaway’s holding company structure, which is often ridiculed for trading at a discount to intrinsic value, is a strength. 

That’s because some of the operating companies it owns, such as See’s Candy in California, can’t possibly reinvest the abundant free cash flow it generates in its business–something like $2 billion since Berkshire’s owned it–so it sends the cash to Berkshire in Omaha, and Buffett and his team find something useful to do with it. 

That gives the management of Berkshire’s operating businesses a much greater capacity to suffer occasionally and for longer without losing their edge. 

It’s a potent advantage.