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From Greg Wilson, chief analyst, the Legacy Portfolio: He put the concept to work in 1987 when he and his firm bought Brown-Forman (the maker of Jack Daniel’s).
In time, it paid enormous dividends…
Tom Russo is a partner and portfolio manager at Gardner Russo & Gardner and Semper Vic Partners. He’s also a long-term value investor. I got to hear him speak recently at the Value Investor Conference in Omaha, Nebraska.
The concept is the “capacity to suffer.” It means sacrificing short-term profits for long-term wealth. If you’re investing for the long term—like we do at Legacy—it’s a critical question to ask of any company.
Back in the mid-’80s, Brown-Forman made the mistake of listening to Wall Street. Wall Street considered bourbon a dead category. It compelled Brown-Forman to diversify. So, Brown-Forman purchased California Coolers. (It also bought into odd businesses such as fine china, luggage, and college rings.)
It didn’t end well. By 1987, Brown-Forman wrote down its California Cooler position. The stock fell over 40% in three months.
Brown-Forman decided to focus on its core brand, Jack Daniel’s. It embarked on a program to expand it around the world.
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That’s when Russo and his team stepped in to buy the stock.
He knew the expense of opening up those new markets would weigh on its operating income. (That’s because the small volumes of whiskey originally produced could not absorb the fixed overhead.)
But Brown-Forman sacrificed short-term profits for long-term wealth building. That’s the capacity to suffer.
Since its expansion, Brown-Forman has grown from five international markets to 41… with over 50,000 cases sold. It has returned over 16% annually since Russo bought the stock in 1987.
And that was good enough to turn $10,000 invested in Brown-Forman in 1987 into $500,000.
Another of Russo’s favorite stocks utilizing “the capacity to suffer” is one of our Legacy stocks. Legacy subscribers can learn more about it in my full report on the Value Investor Conference, right here.
Reeves’ Note: The Legacy Portfolio is closed to new members right now, but you can sign up for our waitlist here. Mark, Tom, and Greg will send you updates and educational resources on the strategy in the time before our next open enrollment period.