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June 23, 2024 • 2hr 2min
RWH046: A New Golden Age w/ Bob Robotti
We Study Billionaires - The Investor’s Podcast Network
In this episode, William Green interviews Bob Robotti, president and chief investment officer of Robotti & Company. Robotti has beaten the market by a large margin over the last 40 years through value investing. The discussion covers Robotti's background, investment philosophy, views on current market conditions, and outlook for the coming decade.
RWH046: A New Golden Age w/ Bob Robotti
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Key Takeaways
- Bob Robotti believes we are entering a "new golden age" for active, value-oriented investors as opposed to passive index investing. He expects stock pickers to outperform over the next decade.
- Robotti anticipates persistently high inflation due to factors like the evolution of globalization, energy transition costs, and resource constraints.
- He is heavily invested in "old economy" industries like chemicals, building products, and energy services that he believes are undergoing a "metamorphosis" and are well-positioned for growth.
- North American companies in energy-intensive industries have a significant competitive advantage due to low natural gas prices compared to Europe and Asia.
- Robotti sees major opportunities in the global energy transition, including both fossil fuels and renewables. He calls it "the first truly global energy crisis."
- He believes the "Magnificent Seven" big tech stocks carry valuation risk and investors should be cautious about overexposure.
- Robotti emphasizes the importance of valuation and buying assets at a significant discount to replacement cost as core to his investment approach.
- He credits his success partly to his ability to tolerate short-term losses and stick with undervalued investments through periods of underperformance.
Introduction
In this episode, William Green interviews Bob Robotti, president and chief investment officer of Robotti & Company. Robotti has beaten the market by a large margin over the last 40 years through value investing. The discussion covers Robotti's background, investment philosophy, views on current market conditions, and outlook for the coming decade.
Topics Discussed
Robotti's Background and Early Career (4:40)
Bob Robotti grew up in Queens, New York in a family involved in small businesses. He graduated from Bucknell University with a C average as an accounting major. Through connections, he got a job at a small accounting firm that led to opportunities working with investment firms like Tweedy, Browne.
Key points:
- Robotti's father ran an insurance brokerage out of their home
- He intentionally chose an "easier" accounting major at Bucknell
- His first job exposed him to value investing principles at Tweedy, Browne
Formative Experiences in Value Investing (12:18)
Working at Tweedy, Browne in the 1970s was a formative experience for Robotti. He was exposed to legendary value investors like Walter Schloss and saw firsthand how they analyzed and invested in undervalued, out-of-favor stocks.
"I saw what Tweedy did, I saw what they owned. Joe [Reilly] worked with me, went through the investment process. So it was a great introduction to investing." - Bob Robotti
Key points:
- Tweedy, Browne specialized in finding undervalued "pink sheet" stocks
- Robotti learned core value investing principles from experienced investors
- This period in the 1970s was the "starting gun for value investing" after the market crash
Working with Mario Gabelli (33:19)
From 1980-1983, Robotti worked as CFO for Mario Gabelli's nascent investment firm. He describes it as getting a "one-on-one MBA" from Gabelli, learning his investment approach and business acumen.
Key points:
- Gabelli only managed $7 million when Robotti started
- Robotti attended daily investment meetings to hear Gabelli's ideas
- He gained valuable experience in both investing and business operations
A New Golden Age for Stock Pickers (40:22)
Robotti believes we are entering a "new golden age" for active investors and stock pickers after a long period where passive indexing dominated. He expects stock selection to outperform over the next decade.
"I think the next decade is going to belong to stock pickers. And I don't care if that's technology companies, growth companies, industrials, financials - all of those have reasons to pick stocks and not the index." - Bob Robotti
Key points:
- Fewer people doing fundamental research creates opportunities
- Economic environment is changing, favoring active management
- Robotti sees a "restoration of the fallen" for value investors
Betting on the "Metamorphosis of the Old Economy" (40:48)
Robotti is heavily invested in "old economy" industries like chemicals, building products, and energy services. He believes these sectors are undergoing a transformation and are well-positioned for growth.
Key points:
- Many of these industries have consolidated and restructured
- They benefit from North America's energy cost advantage
- Valuations are low due to being out of favor
The Evolution of Globalization (46:16)
Robotti sees major changes in global trade and manufacturing as production shifts away from China. He views this as an "evolution of globalization" rather than de-globalization.
Key points:
- Manufacturing moving to Southeast Asia and India
- This shift will drive demand for infrastructure and energy
- Creates opportunities in emerging markets
North America's Energy Advantage (50:49)
Robotti believes North American companies in energy-intensive industries have a significant competitive advantage due to low natural gas prices compared to Europe and Asia.
Key points:
- Low energy costs provide sustainable advantage
- Attracting manufacturing back to North America
- Particularly benefits chemical and materials companies
Caution on the "Magnificent Seven" Tech Stocks (57:33)
Robotti warns that the dominant big tech stocks like Apple, Microsoft, Amazon etc. carry valuation risk. He advises caution about overexposure to these names.
Key points:
Outlook for Persistently High Inflation (58:23)
Robotti expects inflation to remain higher than in recent decades due to several structural factors. This has major implications for valuations and investment strategy.
Key points:
- Energy transition is inflationary
- Shifting manufacturing locations reduces efficiency
- Resource constraints in key materials
How Value Investing Has Changed (1:03:35)
Robotti discusses how value investing has evolved, with some investors shifting to higher quality businesses while others like himself still focus on hard assets and deep value.
Key points:
- Some value investors now own more "quality" growth stocks
- Robotti still focuses on asset-based value investing
- Importance of aligning with good capital allocators
Positioning for the Global Energy Crisis (1:19:01)
Robotti sees major opportunities in both fossil fuels and renewables as the world faces what he calls "the first truly global energy crisis." He is heavily invested in energy-related companies.
Key points:
- Tight supply-demand balance in oil markets
- Huge capital needs for energy transition
- Opportunities in services, equipment, and materials
Giving Back and Helping Young People (1:38:06)
Robotti discusses his philanthropic efforts, particularly focused on education. He finds it personally fulfilling to help provide opportunities to young people from disadvantaged backgrounds.
Key points:
- Major supporter of Pace University
- Believes in changing lives through education
- Gains valuable insights from mentoring young people
Lessons on Facing Adversity (1:43:45)
Robotti reflects on lessons learned from his father dealing with vision impairment and his wife Suzanne's challenges with infertility. He emphasizes the importance of perspective and resilience.
Key points:
- Admires how his father overcame vision challenges
- His wife turned personal struggles into philanthropic efforts
- Believes in finding opportunities in adversity
Conclusion
Bob Robotti provides a compelling case for active, value-oriented investing in the coming decade. His focus on unfashionable "old economy" industries undergoing transformation, combined with a long-term perspective and willingness to endure short-term underperformance, has driven his success over 40+ years. Robotti's outlook on inflation, energy, and globalization trends offers valuable insights for investors navigating an evolving economic landscape.
