If you are one of the many investors who want the companies in which you invest to return just about any excess cash to shareholders via dividends or stock buybacks, you probably haven’t been a fan of Tom Russo’s portfolio over the past quarter-century. And that is too bad for you.
In a recent interview with WealthTrack, Russo — who has handily beaten the market over the past 25 years — explained why he likes companies to reinvest as much of their cash as possible back into their businesses. Over the long term, he says that is more beneficial to stockholders than buybacks or dividends, and he cited Warren Buffett’s Berkshire Hathaway as a prime example. Russo said that he has found that companies that can generate the best returns on their reinvestment tend to have “fairly knowable, certain, and appealing brands.” Russo also talks about his concentrated, globally diversified portfolio — 70% of his funds are in his top 10 holdings, and 36% of the revenues of his holdings come from emerging markets, with another 15% from Europe. He says that international markets are where the growth is, as they give companies a logical place to deploy more capital. Russo also talks about why he likes companies that have the “capacity to suffer”.