Russo the Capacity to Suffer

Thomas A.Russo CFA Society of Nebraska Dinner May 3, 2012 2 3 4 . Musings on “Global Value” Equity Investing •Value Investing – 50 Cent Dollar Bills •Stanford Business and Law School. 1982 •“Capacity to Reinvest” •2008 market collapse •“Capacity to Suffer” •Berkshire Hathaway •Nestlé – 35 year “planning horizon” •Pernod Ricard – credit default swap mayhem •SABMiller emerging market beer specialist •Invest for the long term •White space •Position capital globally •Currency gains •Circle of competence •Tax efficiency •Virtues of low expectations! •Market volatility is long-term investor friend 5 . 2007 6 . •GEICO •Equity index put options •Extraordinarily cautious short-term deposits. fiscal year.“Capacity to Suffer” •BERKSHIRE HATHAWAY INC. “Capacity to Reinvest” 7 .A.Nestlé S. 8 . YE 2008 Billionaire Brands Presentation 9 . Nestlé “Capacity to Reinvest” YE 2011 Billionaire Brands Presentation 10 . Nestle “Capacity to Suffer” •Russian Ruble crisis (1998) •Nespresso •China and India •Alcon (1970’s through 2010) •Novartis payment/DiGiorno acquisition (2010) •2011 Chinese acquisitions in confectionary (Hsu Fu Chi International ) and beverage (Yinlu.) 11 . Pernod Ricard “Capacity to Reinvest” 12 . 13 . over 500 million cases local spirits •Absolut (2009) – global leader & premium vodka •India (2012) •Addressable market -.Pernod Ricard “Capacity to Suffer” •China (early 2000’s) •Addressable market -.over 100 million cases of India made Scotch Whiskey currently consumed •Leading premium priced local Scotch Whiskey brand 14 . SABMiller “Capacity to Reinvest” 15 . SABMiller “Capacity to Suffer” 16 . 2008-2009 17 .Credit Default Mayhem. 400 million barrels beer consumption •Indian Market •Addressable market – current consumption 1 liter per capita •Recently completed Foster’s acquisition •Strategic partnership with Efes to coordinate Russian operations and expand together in Turkey. Efes’ home market 18 . China’s leading brewer •Sub-Saharan Africa •Addressable market -.SABMiller “Capacity to Suffer” •China •50% interest in Snow. Enhances return from share repurchase.Market Volatility is a Friend of the Long-term “Global Value” Investor 1. 2. 19 . Offers merger and acquisition opportunity. Permits more effective reinvestment. 3. “Capacity to Suffer” 20 . 2% 5.6% 33.9% 10.7% 10.1% -5.8% 4.7% 7.5% 25.8% -31.5% 15.5% -0.4% 24.5% -37. Annual Return Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 (Thru 3/31) Compound Annual Return Semper Vic Partners 12.8% 16.9% -9.2% 15.8% 31.P.9% 33.3% -15.8% 3.7% 6.9% 28.6% 1.4% -4.9% 5.1% 13.2% 18.4% 14.1% 15.1% 24.8% 24.1% 1.9% 19..0% 0.5% 5.1% 7.8% 36.0% 28.6% -2.5% 27.4% 22.0% 37.1% 15.2% 11.6% Dow Jones Industrials 8.6% 12.4% 5.0% 23.3% 10.3% 28.1% 23.6% 19.Semper Vic Partners.8% 43.1% 21.9% 13.3% 11.9% 8.1% 31.2% 33.0% 22.7% 27. L.8% 37.7% 31.0% 16.1% 24.5% -3.4% 23.3% 24.4% 27.1% -11.5% -1.6% 21 .7% 16.2% 6.1% 26.5% 7.7% 19.5% 1.7% -22.9% 28.7% 21.0% 5.2% 18.7% -31.8% 8.7% 5.6% 30.0% S&P 500 12.6% 2.7% 20. 22 . 23 . 24 . 25 . Geographic Revenue Analysis 2011 Summary Company Phillip Morris International Nestle Berkshire Hathaway Compagnie Financiere Richemont SABMiller Heineken Pernod Ricard Mastercard Wells Fargo British American Tobacco Altria Unilever Anheuser-Busch InBev Brown-Forman Diageo Martin Marietta Materials Comcast Scripps Networks Interactive Washington Post Hasbro Berner Gruppen Norges Handels Developed Markets Emerging Markets 54% 59% 100% 67% 33% 44% 65% 79% 100% 31% 100% 50% 63% 88% 65% 100% 100% 100% 100% 88% 100% 100% Portfolio Weight 46% 41% 0% 33% 67% 56% 35% 21% 0% 69% 0% 50% 37% 12% 35% 0% 0% 0% 0% 12% 0% 0% 11.0% 0.1% 1.8% 0.3% 0.5% 3.0% 3.0% 0.7% 6.2% 5.4% 1.0% 0.1% 0.4% 1.1% 0.0% 0.0% 4. Data from company reports.1% 1.0% 2.1% 3.2% 1.6% 10.1% 6.0% 2.5% 0.2% 7.3% 4.0% 2.1% 0.1% 99. which is generally less than 2% of portfolio.Semper Vic Partners.3% 4.4% 2.1% 6.0% Notes: Analysis excludes cash held in portfolio.5% Weighted Average Emerging Markets Exposure 5. Capital IQ and GRG estimates.3% 4.P.0% 0.4% 0. 26 .0% 0.4% 10.9% 3.0% 0.0% 3.2% 4.0% 31.5% 2. L.3% 5. 5% -1.6% -2.6% Dow Jones Industrials 8.8% -31.1% 7.8% 36.5% 25.5% -3.0% 28.4% 24.1% -11.4% 14.9% 33.0% 0.7% 19.5% 27.2% 15. L.4% 23.7% -22.2% 18.6% 30.4% 22.7% 27.1% 24.4% -4.7% -31.P.4% 5.9% 5.0% 5.8% 24.5% 1.8% 8.8% 43.0% S&P 500 12.1% 15.8% 4.1% 31.1% 1.0% 23.7% 6.9% -9.9% 10.3% 24.7% 21.7% 10. Annual Summary of Limited Partner Returns Currency Effects Highlights Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 (Thru 3/31) Compound Annual Return Semper Vic Partners 12.8% 31.2% 11.2% 6.6% 33.0% 37.9% 28.5% -37.1% 23.5% 7.3% 28.6% 12.7% 5.8% 3.6% 1.6% 2.9% 13.3% 10.6% 19.0% 16.3% 11.9% 19.5% 5.7% 20.7% 16.3% -15.Semper Vic Partners.1% 26.2% 5.9% 8.8% 37.1% 21.1% -5.7% 31.5% -0.8% 16.4% 27.1% 13.2% 33.1% 15.9% 28.1% 24.6% 27 .2% 18.7% 7.0% 22.5% 15. 5% 15.5% 7. LP Analysis of Currency Contribution From December 31.7% 1.5% -37.9% 10.0% 4.8% 21. (Q.6% 17.1% Comparison of Contribution for the Semper Vic Partnerships Foreign Currency Portfolio Effect1 1 Year 3 Year 5 Year 10 Year 1) Based on a weighted average 2) QP commenced 10/15/2003 -1.1% 26.8% 3.63% 28 .8% 3.2% 6.1% 15.5% 25.4% -1.1% 19.3% 28.9% 21.Semper Vic Partners.7% -31.1% 22.2% 78.7% 132. Total Return 11.8% -4.1% 1.9% 22.8% 8.P.9% 33.2% 11.8% -31.26% Dow Jones Industrial Average 10.P.0% 10.8% 4.6% 3.2% Semper Vic Partners.8% 6.6% 2. Total Return Semper Vic Partners.7% -22. Total Return 15. L.0% 15.9% 8.05% S&P 500 8.P.P.0% -0.6% Dow Jones Industrial Average 8.2% 26.8% 5.0% -2.8% 4.3% -15.0% 33.8% 4.) L.6% 3.4% -4.5% 117.8% 23.4% -2.2% 2.7% 20.3% 3.7% S&P 500 12.0% na2 na2 na2 na2 12.3% na2 15. 2012 Year Foreign Currency Portfolio Effect1 2012 YTD 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 2.8% 116.9% 28.9% -30.P. 1999 through March 31.) L.1% -11. (Q.9% 19. Total Return Semper Vic Partners.5% -1.9% -9.4% 14. L.6% 31.5% 87.5% 7.1% -5.5% 49.0% 5.7% 10.7% 63.7% 5.57% Semper Vic Partners.P. 29 . 30 .