From his own days in business school in the 1980s, Thomas A. Russo recalls learning from observations made by Columbia Business School alumnus Warren Buffett ’51.

At the time, Buffett admonished CBS students about the value of concentration. He observed, “You do not have that many good ideas across a career,” Russo recalls.

This remains a guiding principle underpinning Russo’s own investing philosophy as managing member of Gardner, Russo & Quinn and portfolio manager of the Semper Vic investment partnership, and in his role advising CBS students on the 5x5x5 Russo Student Investment Fund. In the fund, five student-pitched investments are selected and $50,000 is invested in each for five years – keeping students engaged beyond graduation in analyzing the results of the investment they proposed.

Russo, who conceived of the idea for the $1.25 million fund and is also a charter member of the advisory board for the Heilbrunn Center for Graham & Dodd Investing at Columbia, sees far-ranging benefits to students investing real funds. Here, he shares his insights about the appeal of value investing, the importance of investing for the long haul, and the opportunities he sees, even in volatile markets. 

CBS: How did you arrive at a five-year holding period for the securities purchased in the 5x5x5 fund?

Thomas A. Russo: The five-year term is necessary for the full educational impact. The longer holding period is an essential proving ground that offers students – and later alumni – the chance to experience both the highs and lows of gains and losses over time. This experience of long holding periods should provide 5x5x5 participants front row seats to observe the drama coming from investments that succeed as well as from those that fail. 

This discipline of holding for five years provides student investors an unrivaled opportunity to identify and invest in businesses with competitive advantage that they believe should offer attractive investment returns based on the current entry price paid for shares. The ability for the student author of a given idea, as well as his or her colleagues, to watch portfolio returns surprise, both on the upside and the downside, over time reveals the important factors that may have been overlooked when original assumptions were reviewed.

Lessons learned over time require judgment concerning the strength of a business franchise, the caliber of management teams, solid financial footings, etc. It is my belief that a five-year horizon provides the environment in which important lessons can be learned when compared to student funds that all too often only last for a single academic quarter (e.g., the length of a quarter often is three to six months!!!). There is just too little time in such settings for the important investment lessons to be learned when compared to those that can and will surface over a five-year holding period. 

CBS: How do you regard the current volatility in the market and its implications on how it will affect students who are still developing their investment processes?

Russo: The current economic climate offers promising opportunities for long-term, disciplined investors, even – especially – in the midst of volatile markets. 

Because the run-up and fall-off have been so violent, folks left standing feel quite lonely in the area of such destruction of equity valuations. That, indeed, is the feeling that they are supposed to have, as William Green wrote in Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life. I’m reading it now, and in the investor profiles Mr. Green observes that almost to a person, investors really make their money by standing against the crowd in a company in which you have deep domain expertise. Such domain expertise allows investors to have the confidence to act contrary to the crowd in a period of maximum pessimism and a period of maximum uncertainty.

CBS: What is the key to developing domain expertise?

Russo: Developing that domain expertise and investment methodology to have the courage of conviction is the task of Columbia Business School, which I see being carried out across their curriculum that teaches students to identify who has domain expertise with better information while helping them develop “a steel stomach with which to act during maximum pessimism.”

CBS: How does the 5x5x5 fund play a role in that process?

Russo: The 5x5x5 Russo Student Investment Fund investment club has great value because of its proximity to Columbia’s ecosystem. Student participants are not only present on campus during their selection in early years, but also will ideally return to Columbia’s splendid new campus over the ensuing years as they engage with other 5x5x5 participants with their outstanding ideas.

CBS: How do you regard the vagaries of the market and the key to long-term success?

Russo: Beauty is in the eye of the beholder, is it not? At the same time, investing in the near term alone is a voting machine to determine what is the most beautiful. Over the long term, investing is a weighing machine – which one added the most? I think what you see from the Columbia 5x5x5 fund is the importance that investors find businesses that are indispensable and that can, with pricing power, in inflationary or non-inflationary times, deliver more weight.” 

CBS: Are there intangible benefits to students investing real funds?

Russo: There are two additional “dividends” from the 5x5x5 program. First, former student participants collaborate and share insights when they return to campus to account for their holdings over time. Conversations and critiques between current participants and alumni have been extraordinarily supportive and professional. Second, participants also enjoy the benefit of networking and career conversations. With the fund fully up and running, there are today 25 total participants. Many within the alumni network of the Russo 5x5x5 have investment practices about which existing current student participants would love to learn more. I believe that the 5x5x5 program provides a perfect venue for such programming participants to network, both personally and professionally.

It has been my honor and pleasure to participate in the early formative days of the 5x5x5 fund. It is indeed my special thanks that Columbia University and the Heilbrunn Center agreed to take on the integration of the 5x5x5 program into their renowned value investment-oriented MBA program.