# Semper Vic _If you have the capacity to reinvest, spend up to the point where you've run out of opportunity._ --- ## Two capacities Tom Russo has run Semper Vic Partners since 1983, compounding capital through concentrated positions in global consumer brands. His average holding period is ten years. His core question when evaluating a business: can management tolerate short-term pain for long-term gain? He calls this the "capacity to suffer." Russo looks for two related abilities. The capacity to reinvest: deploying free cash flow into growth opportunities that exceed the cost of capital. Not every business has this. See's Candies generates excess cash but has nowhere to reinvest it at attractive returns. The right structure sends that cash elsewhere (to Berkshire, in See's case). And the capacity to suffer: management's willingness to make investments that burden short-term profits. Entering new markets, building brands, developing products. These require spending that hits the income statement before any returns materialise - the uncomfortable reality of [[Paying for growth]]. Most management teams can't tolerate the earnings volatility this creates. Many companies have reinvestment opportunities. Few have governance structures - the [[Designing the organisation]] question - that allow them to pursue those opportunities when it hurts quarterly results. --- ## Family control as enabler Roughly 60% of Russo's portfolio is family-controlled. Heineken, Richemont, Pernod Ricard, Brown-Forman. In each case, founding families retain voting control and significant economic exposure. When SAB Miller launched a takeover bid for Heineken, the family's response was simple: "We control 50.1% and we say no." That ended the discussion and allowed management to continue investing for the long term. When asked about Nestlé's time horizon, the CEO said "thirty-five years, but we break it up in five-year increments." That answer is only possible when ownership insulates management from quarterly pressure. The pattern extends through the portfolio. MasterCard kept operating margins in the mid-50s for over a decade despite volume growth that could have pushed them higher, choosing restraint in current profits to build competitive position. Philip Morris spent $5 billion on reduced-risk products, growing users from 1 million to 21 million. Alphabet's YouTube took 13 years to break even; its cloud business accumulated $18 billion in losses before turning profitable. --- ## Companies that can't General Mills, Cadbury, SAB Miller. Russo cites these as companies that lacked the capacity to suffer. They couldn't sustain lumpy reinvestment. They optimised for smooth earnings. They lost competitive position to rivals who could tolerate short-term pain. The pattern is predictable. Dispersed ownership creates pressure for predictable quarterly results. Compensation tied to near-term earnings reinforces the bias. Boards without founder involvement lack the authority to protect long-term investments. The company gradually underinvests relative to competitors who face less pressure. --- ## Governance determines time horizon The insight connects to a recurring theme in investor thinking. [[Nomad Partnership|Nick Sleep]]'s observation is that scale economics shared requires ownership structures that enable it: you can't pass savings to customers if the board demands margin expansion every quarter. [[TCI|Chris Hohn]]'s point is that management matters less for businesses with hard assets but matters enormously when reinvestment decisions determine outcomes. [[Henry Singleton]] concentrated value among remaining shareholders through buybacks; Russo's companies reinvest aggressively into growth. Different mechanisms, same prerequisite: governance that protects the long term. If you want to build something that compounds for decades, you need structures that protect against quarterly pressure. Family control, dual-class shares, concentrated ownership, or a board with genuine authority to prioritise the long term. The strategy is straightforward. The governance that enables it is rare. ---