For decades, fund manager Bob Robotti has made the nearly impossible seem ordinary.
Consistently outperforming the market for 20 years is rarer than breaking into Cornell, S&P Global data shows, but Robotti’s flagship fund has crushed the S&P 500 for more than 32 years. Its Ravenswood fund has grown almost 100-fold since 1992, compared with a 22-fold increase for the index.
In a recent interview, Robotti revealed the investment strategy that has brought him so much success, while highlighting common mistakes investors make and explaining one of his best trades.
Robotti and company
Conviction and composure: how a market-crushing manager invests
Robotti’s formative years as an investor came during the value boom of the mid-1970s, an environment that bears little resemblance to the meme-fueled momentum rallies of the 2020s.
“You couldn’t find a more opportune time to get into the market, especially if you have a value investing approach, because it’s the beginning of the starting gun for value investors,” Robotti told Business Insider.
But while it may seem like Robotti and Reddit day traders couldn’t be more different, they both believe that markets are inherently inefficient. Stocks often trade above or below their fair value, meaning active managers who choose stocks wisely can earn huge, surprising returns.
“What we’re really looking for are opportunities where that dollar can also compound to double, quadruple or 14x,” Robotti said. “I’m not a value investor, but a growth investor. I look for companies that have significant growth out of a cyclical recovery and out of a downturn.”
Instead of hoping to take high-growth stocks to unfathomable heights, Robotti looks for companies with unfair discounts. If you’re right, those stocks should eventually outperform, and so should your fund.
“We have identified companies with economics that the market did not appreciate and that now did,” Robotti said. “People say, ‘Oh, who cares if you buy cheap stocks? The market will never pay attention to you. No, no, no, no, no, it’s all about economics. When the economics of a company, even if “People hate that business, it’s extremely strong, the stocks follow.”
The 41-year market veteran later shared his version of the saying made famous by political strategist James Carville: “It’s all about economics, stupid, that’s what drives stock prices.”
Quality companies often sell for good reasons, such as after a disappointing quarter, if a key executive resigns or suspiciously dumps stock, or if a peer warns of weakening sales. But stocks can suffer even if your business or industry is healthy, as investors often get spooked by weak economic data or after a significant market rally. That can create buying opportunities.
However, not all economic stocks are good investments. The challenge for value-minded investors like Robotti is determining whether a company is truly undervalued or whether it is cheap but fairly priced because its business is in serious trouble or in long-term decline.
“Investing in a business that has been through a difficult period: is it a temporary cyclical pattern or is it a long-term secular decline?” Robotti said. “That’s a critical element: If you’re wrong about that, then you’re wrong about the investment.”
Robotti later added: “And if they’re wrong (the market is wrong about certain things), there’s the opportunity. So that error in judgment, the underestimation of what the opportunity is, for the guy who has the ability to do something, It is a radical value.” creator.”
When Robotti identifies quality companies that are cheap, he is willing to wait years for them to recover. Impatient investors may say the stock is broken, but what needs to be fixed is your strategy.
“I disagree with the ‘value trap’ characterization in many ways,” Robotti said. “An investor’s timeline, potentially, is not long enough to understand the fact that they bought a business that, whether it’s the business itself or the sum of the parts, the latent earnings of that business are dramatically higher than that the market can appreciate, because it is looking at the next quarter;
Markets are often short-sighted, the investment chief said. Focusing on the next three months instead of the next three or more years (or, in Robotti’s case, the next three or more decades) can backfire.
“What all that data and information does is take people’s timelines and make them stop thinking about a year or two and focus on the next quarter, the next month,” Robotti said. “A piece of information about something happening in a company today may be negative, but we often find that that means, over a three- to five-year period, it’s an extremely positive development.”
6x Increase Proves Patience Pays Off
A perfect example of Robotti’s investment strategy at work is Tidewater (TDW), a Houston-based oilfield services company of which he has been on the board of directors since June 2021.
When Robotti got involved with the company, which provides service vessels to offshore drillers, it was trading at about $14 a share. Three years later, he sells for more than $90.
“Three or four years ago I went up to people and said, ‘Here’s the stock: this company is trading at 20 cents on the dollar, the business is one where supply and demand will balance out; when that happens, the value of this business will be equal to the replacement cost of those assets, which is five times higher than the current one,'” said Robotti.
Although Tidewater looks like a clear winner in retrospect, many investors had written it off as a value trap. The stock had lost nearly half its value nearly four years after the company emerged from bankruptcy in 2017. Many saw an exit, but Robotti saw a tantalizingly cheap stock.
“They didn’t know when it was going to happen,” Robotti said. “They didn’t want to have dead money; they didn’t want to potentially lose money.”
Tidewater’s long-awaited turnaround came after a series of deals that eliminated competition while reducing leverage, thereby improving its cost structure, Robotti said. Acquiring rival GulfMark in 2018 was crucial, he said, as was the bargain-basement purchase of Swire Pacific.
“Being opportunistic during that crisis to grow the business and increase profits by acquiring others and consolidating that industry is a great transformation,” Robotti said.
Robotti’s research led him to a stock trading well below its fair value, and the struggling company’s improving fundamentals ultimately sent the stock soaring. But while his investment paid off, the fund manager is in no rush to turn a profit. Instead, Robotti remains focused on the long term.
“If you bought it for 20 cents and it doubles, you’re not going to sell it for 40 cents,” Robotti said. “In any case, more are bought at 40 cents on the dollar because the pattern of economic events that drives the realization of the economy is manifesting itself.”
