At a small, invitation-only investment gathering in New York, I had the chance to speak with Tom Russo.
He manages the Semper Vic Partners fund, which has returned about 14% annually for more than 30 years. That tops the S&P 500 Index by more than three percentage points per year.
To appreciate how great a three-percentage-point difference is over 30 years, consider this: $10,000 invested at 7% annually for 30 years is $76,122. But $10,000 invested at 10% annually for 30 years is $174,194.
Despite all his success, Russo is as humble and as nice a guy as you could hope to meet. I've met him before, and he's always been generous in sharing what he's learned.
Russo spoke about one secret of his success that I'm still having a hard time wrapping my head around.
I'll share this secret with you today. It has to do with patience... and not only deciding which stocks will serve you well over the long term, but what the "long term" really means...
First, a little background: Russo is commonly known as the guy who took Warren Buffett's principles and applied them to overseas markets. In the early 1980s, this was a novel thing to do.
His particular focus was on companies with powerful brands – or "moats," as Buffett said. These companies had a competitive edge that translated into a huge financial safety net.
So Russo started buying European brands such as food company Nestlé and beverage maker Pernod Ricard.
And then he held them... basically forever, or until he couldn't hold them any longer.
For example, in 1989, Russo began investing in Weetabix, the maker of a rather tasteless cereal, which – for whatever cultural reason – Brits seem to hold as some sort of semi-sacred comfort food.
Anyway, back then, Weetabix traded for less than six British pounds per share. Russo figured it was worth at least 13 pounds per share. He wound up owning almost one-fifth of the company. Eventually, a private-equity group bought Weetabix for 54 pounds per share in 2003. That made Weetabix a nine-bagger for Russo. And he had to sell.
Otherwise, he doesn't sell – pretty much ever.
And here we get to the mind-blowing part. Russo said his average holding period for his top 10 stocks was probably about 25 years.
Let that sink in. Many people can't hold a stock for 25 months – or even 25 days – much less 25 years. With that kind of grip, your portfolio doesn't change much. Russo's doesn't.
When asked about how he manages his portfolio, Russo told a story. He said he has a friend in Boston who was trying to get into an exclusive country club. Year in and year out, he couldn't get in. It had a waiting list.
Then, the Red Sox won the World Series for the first time since 1918. (This was in 2004.) Suddenly, several spots at the club opened up. It turns out, all these old guys were hanging on to see the Red Sox win the World Series. And when that happened, the old guys finally expired happily.
Well, Russo said his portfolio was a bit like that. Spots open up when something dies. In fact, he just bought a starter position in Alphabet (Google's parent company). It was his first new purchase since... 2010!
But what about technology? Doesn't changing technology make it harder to hold a stock for so long? I would say yes.
In my book, 100 Baggers, I shared some evidence showing that corporate lifespans have been shrinking:
For example, take a look at the average lifespan of a firm in the S&P 500 index. It is now less than 20 years... The average lifespan was 61 years in 1958. So things have changed a great deal. At the current rate, Innosight estimates 75% of the current S&P will be replaced by 2027.
Leaving the S&P 500 doesn't mean the death of the firm. But unless there is a buyout, the S&P usually kicks you out only when you are in trouble – for example, Circuit City, The New York Times, Kodak, or Bear Stearns. Or it kicks you out when you get too small – which is another way of saying you underperformed.
Against this backdrop, we have to be more diligent about making sure we don't own firms about to go the way of buggy-whip makers. Suffice to say, holding on to stocks for a long time does not mean blindly holding on to stocks for a long time.
That's why Russo's focus on moats has paid off... along with his extremely long-term holding periods. He selects the best companies that are most likely to last.
I often write about the virtues of buying and holding, patience, and all the rest of it... But Russo has made it an art form. And he's super successful. To beat the S&P 500 by three percentage points per year – for more than 30 years – is a hall-of-fame kind of run.
You have to sit on your stocks and give them time. Don't look at stock quotes every day. Don't fret when they don't go anywhere. Focus on the business.
If the business is good, time is on your side. Hang on.
Editor's note: Chris recently discovered what he calls a huge "no brainer" investment opportunity. It's a stock that could be on the verge of a historic breakout. In fact, once it gets rolling, he believes early investors could make 10,000% returns or more... For more details, check out his exclusive interview right here.
Porter Stansberry recently shared his personal journey to finding the "perfect" kind of investment. To learn how to recognize world-class businesses you always want to own for the long haul, check out his essay: Why I Lost Interest in Deep Value Investing.
"Remember, when you buy a stock, you're buying an ownership stake in a company," Dr. David Eifrig writes. Find out how one simple metric can help you avoid struggling businesses right here: A Simple Lesson on Selecting Winning Stocks.
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