Where to find market bargains

Feb 18, 2014 @ 12:00 am

Runtime: 7:33

When it comes to finding value in the market, Wallace Weitz of Weitz Partners Value Fund and Tom Russo of Gardner Russo & Gardner agree on one thing: It's all about management. Find out which companies they're watching.

Video Transcript

This week on WealthTrack, a dynamic duo of super value investors! Wally Weitz of the Weitz Funds and Tom Russo of Gardner Russo & Gardner search high and low for extraordinary bargains, but find them in very different places. Two great value investors next on Consuelo Mack WealthTrack. Although their view of the values in the market are very different as are most of their holdings, they have one big thing in common. Berkshire Hathaway is one of the largest holdings in each of their portfolios and they are huge fans of Warren Buffet. -Well, Berkshire is a collection of businesses that Warren's put together over 50 plus years that generate excess cash. They send a billion or two home to Omaha every month for him to reinvest and he does let cash pile up-- -Right. -at times. And so, we got into the financial crisis and Goldman needed-- they needed money badly on that Sunday afternoon. He was able to get fabulous terms, the same for GE and the same for Bank of America. But Warren-- You know, there's a-- people-- there are plenty of people who have high IQs, or who are driven, or are great business minds, or a lot of these other characteristics. Warren has 'em all. And what's great about Berkshire from my point of view is it will be a totally different company if you were to just look at it every 10 years. But the-- you know, the organization of it and what he's doing with the cash flow will be consistent. And so, you can close your eyes and I think the last two or three-- maybe every time I've been on your show you said, well, what's with the one stock and I've said, well, Berkshire Hathaway because you can-- you can leave it alone and trust Warren to-- -To transform it. -to reinvent it-- -Uh-huh. -reinvent it as needed and continuously over time and be totally disciplined. He is-- There's criticism in some paper recently about, you know, Warren's investment record isn't so great because he uses leverage because he has $75 billion of float, which is like an industry loan for him. But there's a lot of people who have access to leverage and have blown themselves up-- -Yes. -Uh-huh. -in much shorter period than 50 years. And so, for him to be able to keep buying the stocks that look kind of boring to people on the outside, the Cokes and American Expresses, and so on, and do it for 50 years and compound at 20 plus percent and do it in a very tax efficient way for the investors. It's-- -Extraordinary. So, you were just telling me that if you look at Warren-- -Yeah. -Buffet's doing his most recent acquisitions, the big ones, Exxon Mobil,-- -Yeah. -Yeah, yeah, yeah. I think-- -and IBM. -Warren-- -Yeah. -Tell me about your analysis of the IBM and Exxon Mobil. -I've just been struck by how obvious and how plain and how straightforward those investments are and how enormously dull they are and how boring and in a marketplace that's full with stories, to see where Warren puts the capital and it's completely ignored. Often if you have-- if we have an interview in a forum like this, people say, why on earth will you talk in a forum like this because after all won't people copy. Warren's always said that, you know, he'll do things publically. He'll talk about it publically and it's just too dull for most people. And these are two stocks that are just too dull. -Right. -But there's absolutely no reason it's properly harnessed that they couldn't clearly deliver a double, in which case, Warren will have added another $17 billion of value to his shareholders. -Well, part of the purchase price comes from zero or negative cost, interest free-- you know, loan,-- -Yeah. -indefinite length loan from the float. -Right. From his case. -So-- -Yeah. -So even if it-- you know, even if it only does 10 percent a year, the leverage makes it 15 or-- You know, it's-- -And there's something-- -But it has-- But they have to last-- -Yes. -and they have to survive-- -Yup. -and they have to not disappear overnight-- -Yeah. -and those two companies, I think he believes have that-- he started with that. -But let's get off Warren-- -Yeah. -because I feel like-- -Yeah. -but-- so he's a one off. -Yeah. -But you two-- -Yeah. -invest in companies for a long term-- -Yeah. -and you told me, Tom, that for instance Heineken-- -Yes. -is-- because I said so-- you're still owning Heineken. You said no, but it's a totally different company-- -Yes. Yes. -than it was 10 years ago. -Yeah. -So, tell me about-- -Yeah. -the kinds of management that you look forward that aren't just Warren Buffet. -Yes. I think that the lesson that's most powerful from Berkshire, to answer your question, is companies have to have the capacity to suffer when they-- when they want to expand. And so, we look for businesses that have, first of all, the opportunity to expand, the capacity to reinvest that arises from the history of the accident of history in many instances. Nestle happens to be in 190 countries around the world, 75 active businesses around the world because they came from a small Swiss country base and they grew organically. Heineken grew around the world because there are only 13 million Dutch drinkers of Heineken beer. And even though Heineken beer in Holland is-- -Over index though. -Oh yeah-- is so much than a breakfast drink, as they call it, at some point, there are only that many hours a day. They had to look elsewhere and with them travel their brand. -But that's also a family-controlled business, Heineken,-- -Absolutely. -while Nestle is not. -Yeah. -But that's another thing that you two look for in the-- kind of the initial screen-- -Yeah. -is-- -Yeah. -management that you can trust. So, tell me about the screen of management, why management is so important, Wally. -Well, Tom talks about the ability to suffer and he's talking often about families that have multi generations. They are there. They're completely committed to the thing and committed for the next generation. Our-- We're looking for the same sort of thing in a different form. We want the Buffets, the John Malone, the-- -Liberty Media-- -Liberty Media. -Invested with Malone for a long time. -People like the guy who runs TransDigm. It's all about the company for him and doing a great job and so they're not only able to execute well. They're smart about reallocating the capital they generate and they can stop-- you know, they just avoid listening to Wall Street. There's a great book that is out in the last year or so called The Outsiders by Thorndike and he profiles what 10 different-- -Yeah. -managers and that's Henry Singleton, and it's Buffet, and it's-- you know, companies who-- -Tom Murphy. -Tom Murphy-- -Yeah, a big deal. Yeah. -who-- -Right. -who ignore Wall Street and do what they think is right for the company. Now, if you ignore Wall Street and do what's wrong for the company, that doesn't do any good, but-- -But how can you-- Who can do that now besides Warren Buffet and John Malone and-- -Well, John Malone has-- -I mean who can survive-- can get to that? -I think it's-- I think that's where you get the benefit from family controlled companies. I mean I have-- Probably 60 percent of the companies I have in the portfolio are still run by the founding families. -Right. -They may have obviously professionals actually executing, but the perspective and the capacity to sustain a long-term investment is giving the management because of the strength of the controlled boat.


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