In a recent WealthTrack interview with Consuelo Mack, veteran investor Tom Russo discussed why he has continued to follow Warren Buffett’s investing principles for over three decades.
Here are some highlights:
- According to Russo, one of the biggest benefits to investors for holding Berkshire Hathaway stock is the alignment of management’s interest with those of shareholders. Berkshire management, he explained, focuses on enhancing the intrinsic value on a per-share basis.
- Russo argued that most CEOs in S&P companies are faced with incentive to jack up share price in the short term because of the stock options they hold. “The whole system,” he noted, “is built around smooth and steady reports for the near term and disregard for the long term.”
- Berkshire’s leadership team, says Russo, is structured to succeed even when the team changes.
- Russo applauds the more liberal stance that the Buffett and partner Charlie Munger are taking on share buybacks. “It’s an important arrow in their quiver,” he said, adding that “not using it limits their ability to pull triggers that will build intrinsic value on a per share basis.” He emphasized his view that the team should act on this sooner rather than later so that its successors don’t confront resistance from shareholders down the road when they want to repurchase shares.
- Berkshire should also consider the payment of cash dividends, according to Russo.
- Russo notes two Buffett principles that he first learned as a student at Stanford University:
- “The only break the government gives is the non-taxation of unrealized gains, so invest accordingly.”
- “You can’t make a good deal with a bad person.” The integrity of management and its alignment with the interests of shareholders is paramount