The Barriers to Entry

Today’s conversation is with Tom Russo, the master of consumer brand investing, and two of our best students, Jeffrey Johnson and Michael Allison. We’re talking about the 5x5x5 Student Investment Fund and having a deep discussion about some of the specific stocks in the portfolio. The concept for the 5x5x5 fund came out of Tom’s concern that conventional investment funds for students offered limited learning potential due to their short-term nature and was made possible by a generous gift given by him and his wife, Georgina.

The 5x5x5 fund is run by the students of the Value Investing course at Columbia Business School, with ideas being submitted by the students each year. Students then have the opportunity to connect value-oriented investment theories to real-world practice as they participate in the management of the fund. Importantly, they are also connected with alumni and are afforded valuable networking opportunities. At the end of five years, the inflation-adjusted original amount is invested back into the fund and any other gains will be used to support scholarships for traditionally under-represented members of the class.

On this episode, Tom, Jeff, Mike, and I discuss how the 5x5x5 Student Investment Fund got started, how this fund differs from student funds at other schools, what goes into the investment decisions, how participation in the fund benefits students, why some of this year’s investments were selected, and so much more!

Key Topics:

• The 5x5x5 nature of the student value investing fund (2:24)
• The multiple benefits to be derived from the fund (3:29)
• How 5x5x5 will become self-funding (4:01)
• The investment selection process (4:34)
• Why Tom is proud of the tough questions raised by students (5:28)
• Why it’s so important to monitor how your original thesis is playing out (5:46)
• Some of the notable investments in the history of the portfolio (6:07)
• How student participation in the fund can lead to important networking opportunities (6:50)
• A deep dive into some of the companies in the fund (8:30)
• Why Tom is excited about the poor performance of the international stocks in the portfolio (11:01)
• The five stocks that made it into the portfolio this year (13:15)
• Jeff’s pitch for adding Booking Holdings to the 5x5x5 portfolio (14:09)
• The business model and competitive advantages of Booking Holdings (15:19)
• How Booking Holdings differentiates itself from Expedia (19:24)
• What Booking Holdings is investing its free cash flow into (21:45)
• Why Jeff chose to pitch Booking Holdings (22:57)
• Jeff’s analysis of Booking Holdings’ valuation (24:53)
• What you can learn by comparing where an industry is in relation to GDP (26:08)
• The growth potential of Booking Holdings’ Airbnb-type listings (30:24)
• Mike’s pitch for adding Becle, S.A.B. de C.V. (“Cuervo”) to the 5x5x5 portfolio (31:56)
• How the limited supply of blue agave is impacting Cuervo’s valuation (33:16)
• The governance, ownership structure and long-term growth potential of Cuervo (37:53)
• Why the tequila industry is experiencing such consistent growth (39:33)
• Mike’s analysis of Cuervo’s valuation (44:39)
• The story behind the acquisition of Bushmills whiskey (48:02)
• Winter Li’s pitch for adding Rollins to the 5x5x5 portfolio (51:41)
• Rollins’ competitive advantages (52:56)
• Winter’s analysis of Rollins’ valuation (53:58)
• And much more!

Mentioned in this Episode:

• 5x5x5 Student Investment Fund
  • Jeffrey Johnson’s Pitch of Booking Holdings
  • Michael Allison’s Pitch of Cuervo
  • Winter Li’s Pitch of Rollins
• Louisa Serene Schneider’s interviews of Warren Buffett
• Booking Holdings Inc
• Becle, S.A.B. de C.V.
• Bushmills

Thanks for Listening!

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