Full Transcript: Bob Robotti on Misunderstood Fundamentals and Grassroots Macro

Matt: You’re watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I’m Matt Zeigler. Bogumił Baranowski of Talking Billions is with me today, and our guest is the founder and chief investment officer at Robotti & Company.

And hey, value investors, I know you’re watching this, and I know you’re doing it because of that Dornbusch expression that you know too well, that things take longer to happen than you think they will, and then they happen faster than you thought they could. You’re going to love this guest if you haven’t met him yet. Bob Robotti, welcome to Excess Returns.

Bob: Well, that’s it. You’ve just summarized my investment philosophy and strategy, and so there’s really nothing else to talk about. I would actually add, given post the financial crisis, how markets have performed and how capital flows today, that there’s a second piece to that saying, and that is, the longer it takes to happen, the larger the outcome can be and the recovery can happen. So therefore, the frustration that people maybe have experienced, I think is setting up an abnormally exciting period of time.

Matt: And this is that forgotten metaphor from Nassim Taleb with the, you know, you need the little tiny fires to clear the brush so that you don’t have the epic forest fires. And that is forever pressed in my brain as an example of the pace that these things can accumulate and then sweep through the world, which is part of why we wanted to have this conversation with you.

Shout out to William Green. I’ve seen you on a couple of podcasts, and I started reading your stuff, and I went, “How did this guy hide in plain sight for all this time in my life?” So we’re excited for this.

Bob: Well, it’s interesting ‘cause, of course, one of the things people talk about with Warren Buffett is that, well, he’s out in Omaha, and he’s not connected, and he has his own viewpoint. And I would suggest, of course, you can do that in New York, you know? So who knows me and who am I connected to? And people will say, “Well, you must know this person.” And I’m like, “I don’t know that person.” So proximity doesn’t necessarily dictate how you think about things and what you look at, so...

Matt: It’s a fantastic thing. You talk a lot about what you describe as looking for misunderstood fundamentals — I love that term — and that the catalyst can often be the very business itself. Unpack what you mean by that.

Bob: So at its core, I think what we are are business analysts. We’re looking at companies and trying to understand what’s the economic model, and trying to understand what that economic model, its potential is. And so therefore, understanding the business is a critical component to investing, and identifying businesses that we think have substantial latent earnings power.

And Economics 101 works, and when businesses perform poorly, capital comes out of businesses like that. People respond to businesses like that. So there’s a cathartic effect of poor performance, that people attempt to do things that are better. So capital comes out of the industry. Companies that are left tend to then consolidate, and so therefore they make their own opportunity in terms of improving supply demand. ‘Cause at the end of the day, the supply and demand for a business is a key determinant of its earnings power.

Bogumił: Bob, our paths crossed a couple of times, ValueX, Markel. I’m so delighted to have you here and ask you questions directly. You have a certain view on what macro means. Some investors say they don’t look at macro at all. Some investors only look at macro. You have a whole different approach to macro. You call it a grassroots macro, where you look at bottom-up individual companies, and by looking at them, that adds up to a big picture view of what’s really going on. Can you tell us how you think about macro?

Bob: So macro is not about the entire economy, right? It really is about a company, its business, how it works, what its role is kind of in the economy, and looking at those businesses to look at supply, demand, the factors in that business, to therefore identify these companies that we think have this latent earnings power.

So the information we get is not... I may not know anything about macroeconomic events in other parts of the world or in other segments, but we get a lot of granularity in terms of that company, that industry, the adjacencies to that industry. And we put Economics 101 to work in how to think through what will happen in supply and demand. What is pricing power? What is the profitability of that potential business? And therefore, why is it potentially a really interesting investment?

Matt: You’ve been doing this since 1983? When did you found the firm?

Bob: Well, I founded the firm in ‘83. Of course, I’ve been thinking about investing since when I graduated college in 1975. I’m not one of those people, as a kid, I was an investor and did all that stuff. I didn’t do any of it. And I was extremely fortunate. That’s what really happened. I failed my way into success.

So I went to college at Bucknell and did exactly what I intended to do. Therefore, goof off and end up with a C. And so when I graduated as an accounting major with a C — accounting is a profession in which there’s a right answer and a wrong answer. There’s not, like, kind of what you think and you make it up. And given my C, I couldn’t get a job at a big eight accounting firm. I couldn’t get a job with any of the large... There are a lot of accounting firms in New York.

And so there’s a little firm, Passeri & Puglisi. Puglisi and my dad grew up together. He gave me an internship in January of 1975, and so he realized that I wasn’t as stupid as my grades were. I had a half a brain, and so he hired me. And so I principally worked on the audit of Tweedy, Browne. So Tweedy, Browne is, you know, the proximity between Graham and Buffett is Tweedy. That is about the closest contact from those points together.

So it’s 1975, so it’s after the ‘73, ‘74 market correction. Market’s down 50%. The Nifty Fifty, one decision stocks. You can’t go wrong buying any of them. You’re guaranteed to make money. You have a huge bust, and half of those stocks end up being zeros because it’s the Polaroids or the Kodaks of the world, and the other half take 12 years to get back where they were, and you have this rotation into value.

And I’m looking at what Tweedy’s doing, and so therefore I’m auditing Tweedy, looking at Tweedy, talking to Walter Schloss, and then I go work for Gabelli for three years. So that’s my introduction, through accounting and then through seeing what these investors do at a time when it was absolutely being discovered. Like it was Ray Kroc. Tweedy was an overnight success, having been in business for 40 years, because there was a rotation into what they were doing and stocks were cheap. Valuation matters. So that’s another key point we talk about regularly.

Matt: So how do you think about this? Because both from college into that exposure, into the launching of your own firm — because there’s a lack of better word for this — these are very different regimes in what you saw and experienced right out of the gate. How much did you understand those as different regimes, this is the reason stuff worked, these are the common characteristics that can carry through these different macro regimes? How’d you understand that?

Bob: I didn’t. You know, it kinda, you see it happen. You see the results. And it is a somewhat simple process. So therefore... And I did not know the market was efficient. I was not informed. I didn’t take that finance class. So no one ever told me that, so I couldn’t be misled. So it was the right place at the right time with the right process that I was fortunate.

Bogumił: Well, it’s fascinating because Matt and I had Robert Hagstrom on the show, and a couple of times we discussed all those different hypotheses and philosophies that entered the world of investing and kind of disturbed our understanding of business-like investing. And you never heard of it, and you could continue to invest the right way.

I wanna ask you about one particular experience. You had exposure to some brilliant minds so early on. You decided to go and start your own business. Can you talk about that decision? Why start your own business? What was it like?

Bob: Well, it’s a pretty straightforward process. ‘Cause when I was auditing Tweedy, Browne, I could see what they could do, and I started to invest myself, and so therefore got interested in that. There was one of the founding partners who had retired, and so he became my mentor, and so therefore I would talk to him about investing, and that’s what I’m interested in doing.

Gabelli, when I start to work for him, and I’m there for three years, I’m the chief operating financial person running his business. There’s 12 people at the firm. So Gabelli, when I started to work for him, managed $7 million. And when I left in ‘83 to start my own firm, it was $77 million. So Gabelli didn’t need me to find stocks, right? He had a modest amount of money that he was investing, and he had great ideas, and he’s a brilliant investor. And so my role was to support the business, but that’s not what I wanted to do. What I wanted to do was pick stocks.

And, as I would point out, no one was foolish enough to hire me as an analyst. I have no background. I have no experience. What do I have?

Matt: A solid C student like yourself. Are you telling me that?

Bob: A C student on top of it all, too. So the only one foolish enough to hire me was me. And so I had to start my own firm, and therefore I could do investing, and that’s what it was. And for 10 years, I made no money, but I was investing, and that’s what I wanted to do. So even today, I think it’s the passion of the process.

Matt: Mm-hmm.

Bob: And as Joe Reilly had pointed out, if you’re passionate about this process and you do it halfway right, you end up making good money, too.

Bogumił: It’s fascinating and it’s humbling to hear about those early years. A lot of people listening to this show might be starting investment firms. Everybody wants to manage other people’s money at some point. I manage other people’s money. I’ve been doing it for 20 years, but I know how humbling it is to start your own practice, and I’m glad that you mentioned that.

Bob: Well, I’ll always admit when I do talk to people, I say, “Listen...” They say, “How do you do it?” I said, “The process I... It will be very few people who can do what I did.” Because, right, when I graduated college, I lived at home with my parents for 10 years.

Matt: Mm-hmm.

Bob: So I didn’t pay rent. I didn’t have expenses. So whatever money I had, I could invest. And so therefore I had longevity and staying power. And then when I got married, my wife and I, we couldn’t have children. We didn’t have children. She had a job. And so therefore, again, I didn’t have needs for I had to go someplace, I had to put the kids in school and all of those things. So I could have very lean years for an extended amount of time. But yet capital was compounding over that period of time. And I could stay and I could continue to do that. So the longevity that I had for the first 20 years — most people don’t have 20 years to be able to do that.

Matt: So let’s jump straight to modern era now. I wanna talk about AI. This is one of the pieces that I just saw from you from one of your investor letters, too. I wanna talk about how you, longtime value investor mindset, what sense of AI? How do you think about it? How do you consider it? You have an outsider’s perspective. Let’s get it on the record.

Bob: Well, I think that the application of the data and information and sophisticated processing is something that will have an impact on everything, right? We all use the internet today. It’s a foregone conclusion. It’s part of the process. So the same thing will happen with artificial intelligence and data and data analysis.

Of course, I do think that, having taken one course, Harvard, whatever else, listening to it, it seemed to me as if you have to have the data and the information to feed in to therefore do the analysis on, to come up with good decision-making. So a critical part I do think, from the one or two companies that I’m involved with very granularly — well, we don’t have enough information on all of the particulars of our business to therefore feed in that data for it to come back and tell us, “Here’s an optimal way to do that that’s different than what you’ve been doing.”

So I do think that data input — this is nothing new here, the idea that data analysis is no value if the data input is not good. And so therefore, having the right data and inputting that data, and then analyzing the data, will enable you to make better decisions. So clearly that’s gonna happen.

Of course, what we would note is that we think that the application of all the data applications in artificial intelligence, clearly we see is driving demand for a lot of things that we think have been underinvested in forever. And so we think it’s a consistent theme that we’ve expressed three, four, five years ago, when people start to talk about de-globalization, right? The view I had was, well, it really is the evolution of globalization, and who plays what role will be different.

And clearly, as an energy investor, I looked at North America as a place that is long natural gas. And so that means that we have natural gas prices, energy prices that are disconnected from the rest of the developed world, and that’s a sustainable competitive advantage. So as opposed to when I graduated college, we were not competitive. We were importers. Many things we were not competitive, and over time, we’ve lost industrial businesses. But three, four, five years ago, it seemed to me as if, well, we have a key ingredient. Industrial businesses are energy intensive. We have a much lower cost of energy. We will have competitive advantage. And so therefore, for industrialization to come back to America is logical and intuitive, because you can’t move natural gas and you can’t build the infrastructure as fast as we can increase the production of it. So therefore, we have this huge competitive advantage.

Another factor on top of that is artificial intelligence and all the demands that it’s placing on the physical world. So the technology needs all kinds of issues and materials that have been under-invested in. And of course, they’re concurrent, right? ‘Cause as an energy investor, again, renewables is definitely a growing field and a growing component. And the current events in the Middle East and attacking Iran, and therefore the problem with the flow of energy out, tells every country in the world, if I have wind that blows in my country or I have sun that shines in my country, I have secure energy. And so the idea that energy security will accelerate renewables makes sense.

But renewables, what do you need? So, I chair Pace University’s endowment and pension committee, and the students and the faculty and the administrators have a task force that have come to us and said, “We want you to change the policy and restrict certain industries you can’t invest in,” and one of them is fossil fuels. And so I met with the provost the other day, we had lunch, and I spoke with her and I said, “It’s more complicated than, you know, you get rid of, you don’t burn fossil fuels.”

And then I sent her an article that was the aluminum plant in Brazil, they had to shut capacity 50% ‘cause the natural gas isn’t there. They don’t have the supply of it. And so you need the natural gas to make aluminum, and if you don’t have aluminum, well, you don’t have renewables, because it’s a critical component in solar and wind and electrification and all these other... Light-weighting, all these things. So the world’s interconnected, and so therefore the demands on things are growing.

And there’s a capital cycle even in the asset-light businesses, right? ‘Cause that’s one of the advantages that these guys have had. They’ve been asset-light forever. At least temporarily, they’re not so asset-light anymore. There’s a huge capital spend they’re doing, and that capital spend is I need cement, I need aluminum, I need copper, I need all these materials. And so... Or is it ahead of itself? Did it get built out too much? Maybe. But it’s one extra call on things that have been under-invested in for over 10 years, maybe 20 years even.

Bogumił: Bob, you’re connecting so many dots for us here, and I find it fascinating how you’re connecting the old economy with the new economy, and you’re reminding us that the new asset-light, software-based world that AI needs the physical presence too, which is fascinating.

Two weeks ago, 10 days ago, I was in Silicon Valley and I spoke with quite a few people. I even visited a headquarters of one of the companies that can be on your mind that are big in AI. I just wanted to feel the energy of the place. And sometimes it doesn’t show up on the balance sheet, doesn’t show up in the numbers. I just wanted to feel it.

And what I saw, and I’m curious, you touched on it: companies that have won in their respective verticals are now in a fight, in a battle. And CapEx is one sign of it, but also a certain sentiment among employees. Much more competitive. They feel less secure about their future. And I have more questions than answers, but historically, when you have an evolutionary change like this, new companies take over this new wave. It’s not the existing companies.

So I have many questions around it. And you mentioned CapEx, but how do you think about it? Those large companies that at this stage should be just collecting dividends and enjoying the ride are basically going back and fighting a battle that’s so visible, not just in CapEx, but in how employees are feeling the pressure, the tension, the competitive vibe. How do you look at it and those top companies? Do you avoid them completely? Do you have a take? What’s going on here?

Bob: No, we avoid them completely.

Bogumił: Okay.

Bob: But the view I do have is, technological change can be great if you’re the guy who’s doing the technological change and you have a differentiated thing. The fact of the matter is, businesses that perform really well attract attention. And, as you point out, a lot of the verticals...

‘Cause I always thought, the last ten years, one of the observations I always had is technology today is not what technology was with the Nifty Fifty stocks. So the technology stocks of the Nifty Fifty were IBM, Digital Equipment. They were computers. They were hardware. Hardware always gets obsoleted ‘cause there’s a better way to do it. The tech companies today are not that. It’s an advertising business, or it’s a retailer, or these businesses are in a vertical and are applying technology, and therefore that gives more persistency to the business, because it’s not technology, it’s not the hardware. It is software and the application of it.

Now all these businesses now are starting to compete with each other, and so therefore that’s a different kinda scenario too. They’re not staying in their lane. So everybody is now doing cloud. And when you think about cloud — and again, knowing nothing about technology — where’s the barrier to entry in having more computers and more processing power and being able to store more data and more information? I don’t know. That does seem to me as if other people can do that, and other people are doing it. So that’s beyond my pay grade. I have no idea what that is and how that works, other than they’re spending a lot of money. There’s a huge cap spend. That cap spend has a command and a call on physical assets that is critical and growing and have been underinvested in, and therefore in tight supply and will continue to tighten further.

Matt: What’s a bubble? Let’s throw this on the table here. You’re talking about the money, the ways that people going into it. The amount of people who should admit their head’s in the clouds when it comes to talking about the cloud. They’re abstract terms. What is a bubble? Does that factor into any of this?

Bob: There are so many things we’re all hesitant to do today because post the financial crisis, there have been trends that have been so long that every time... For example, if someone says, “Oh, there’s gonna be a rotation back into value.” And someone says, “Yeah, I heard that 10 years ago, and that hasn’t happened.” So it’s kind of an application of Dornbusch’s rule. In economics, things take longer to happen than you think they will. And here it’s been, now people have given up. That’s never gonna happen.

And so therefore, I think there’s a lot of presumptions today around the world that, like, inflation really, we can get back to 2%. The world doesn’t have inflation. So there’s a lot of presumptions because... Interest rates are low. Well, they probably should stay low. Why should they be high? Technology advances the efficiency of things, and therefore there’s no inflation. So all these presumptions, because they’ve been really long dated trends that have happened, have now become, it’s the new norm, and that’s not a cycle. And I do think that no, the world is extremely cyclical.

So one of my pet peeves is I love how much wasted time there is talking about what the Fed’s gonna do. And it’s kinda like much ado about nothing. And so because the Fed doesn’t control interest rates. Inflation controls interest rates, and the Fed can’t control inflation. And so therefore, that’s what’s really gonna matter. So the dog is inflation. The tail is the Fed. So watch the tail. It doesn’t tell you anything other than where the dog’s going. And can you tell me where the dog’s gonna go? And that is inflation, ‘cause that’s critical.

And I do think there’s a presumption that inflation, well, maybe it’s three or temporarily goes to four, but it comes back to three to two. That’s the world that exists. Well, if the world in which it exists is one in which over time inflation is a normal recurring fact pattern, and that fact pattern returns and inflation is four, five or six percent — well then if inflation’s four, five or six percent, well the 10-year treasury needs to be five, six, seven percent. If the 10-year treasury is five, six, seven percent, what’s the cap rate on things? What’s the multiple you pay on everything?

So the multiples seem reasonable today because you’re thinking we’re in a two to three percent inflationary world, and so therefore interest rates are low. And then if interest rates are low, then, well, high multiples make sense. Well, maybe not. Maybe we really do have an inflation, and for all the commands of the world, including now technology, that I need cement, I need steel, I need copper, I need aluminum, I need these things — well, that’s kind of inflationary.

Matt: Mm.

Bob: Now, I would agree, and clearly acknowledge, that materials, energy are a much lower portion of the world’s economy than they were 50 years ago. So if there was inflation in materials, it had a much larger impact on inflation broadly. And so therefore the position today — oil at one time was at twenty-five percent of the S&P 500. It ain’t going back to twenty-five percent of the S&P 500. So therefore its impact is reduced by the breadth of the economy, services, a number of different things.

But that still doesn’t mean it doesn’t have an impact and there isn’t inflation. And then what’s the right interest rate? And what’s the right discount rate? And potentially that’s a very different world, and valuations would have substantial movements to adjust to that fact pattern. And that’s not factored in. That’s assumed that’s not gonna happen.

Bogumił: So many thoughts come to mind. I’ve been listening to the Elon book, and one of the anecdotes in the book is how Elon is an outsider to a lot of the industries he goes into, including sending rockets to space, of course. But one of the things that you’re talking about rhymes with it: he looked at the cost of the inputs to build a piece of a rocket, and they give him a quote for whatever, $50,000, and he says, “Well, it costs two, 3% actually, the pieces to make it,” right?

And I think a couple of things are happening there, and I think his anecdote oversimplifies things. And even the CapEx for the big tech companies in the world, that CapEx is not physical CapEx. A lot of it is intellectual property that goes into the design of the inputs.

I wanna ask you about the intangible assets that all those companies have, and that’s where the value is these days, whether it’s the network or the brand, or we’re learning new things about what that means. Has that changed how you think about investing? You’ve been investing for a while when intangible assets were maybe not even taken into account, and we’re in a world where these assets might be really the true moat. How do you think about it? Has that changed your thinking about investing?

Bob: Well, so again, I would observe that in the last 15 years — and again, being a value investor, right, you see it in the value community. I would suggest that there’s two components of the value community, and one of them is someone who bought Apple and Microsoft and whatever 20 years ago when it traded for cash and was really discounted. So they identified the business and were smart enough to own it, and what they also then do is they also say, “Well, Buffett buys better businesses too, so a fair price for a better business is better.”

And better business is an interesting classification. I would submit there are many better businesses that are ascribed that not based on their economic model and the ability to maintain that, but based on the historical capability and the results which have shown that. And that barriers... Well, everybody uses the phrase moat. If you go travel around Europe, you’ll see all the castles that had moats around it. And people figured out how to get over moats.

Matt: Mm-hmm.

Bob: And so therefore, no moat is permanent. And businesses can change, and I think that’s the problem that a lot of successful value investors who pick those stocks, own those stocks — those businesses are evolving, and some of those businesses today are not better businesses anymore. That the underlying economics or the competitive landscape or people figuring out how to do it better. As you said earlier, if new technology comes, frequently it’s not the incumbent that figures out how to do it better. It’s someone else. And so therefore you have a big huge mark on your back, right? And so therefore people are after you because you have a phenomenal business, and I wanna figure out how to get into that business.

So I do think there’s a real risk in valuations, better businesses, and better businesses over time changing. And the analogy I use is when I graduated college, I interviewed with a railroad company, and I thought to myself, “Wow, railroads, what a horrible business.” The costs were way too high. You had unions, energy costs had spiked, so they would cost more to run. So there were all these negatives to the business.

And of course, there was another business, and that other business was called The Wall Street Journal. And The Wall Street Journal was, you know, intangible intellectual property. There was no across the street from The Wall Street Journal.

Matt: Right.

Bob: Today, The Wall Street Journal isn’t a business anymore, right? It’s a vanity project by someone who’s really a billionaire and likes to have a newspaper. In the meantime, railroads are, by their nature—

Matt: A monopoly.

Bob: When you’ve got a rail track that runs from one spot to another, no one’s gonna build a new railroad. And those other railroad companies have consolidated or gone out of business. And it’s capital intensive, but it is a business that generates really good returns ‘cause it’s the most efficient way to move goods over long distances. So the nature of the business was one in which it had really positive economic attributes. It took forever for it to work through its historical burdens that it had, to get to the point where it generated good returns.

And so today, the Burlington Northern doesn’t have as good results as the Union Pacific, but both companies have generated excess returns for over a decade. So capital intensive businesses that have to spend money regularly on track and equipment upgrades and whatever else, still generating free cash flow, and significant free cash flow.

So therefore, recently we did an interview speaking about halo stocks, right? Heavy asset, low obsolescence. And that’s a lot of what we do, is really looking at businesses to try to understand what the opportunity might be, and why this might be a very different business than it is today, and therefore generate very different earnings. And so that’s what we’re doing. We’re looking to find growth companies, but we’re looking to find them in industrial places, and many times that’s the evolution of that business. And it changes over time, and things don’t stay the same. And of course, these are businesses that nobody spends time on and nobody looks at. I go like, “Don’t even talk to me about that. I’m not even gonna think about that for a moment. Why would I?”

Matt: I want you to reflect on this in your business and our business here, where entering it in the period when you entered it, you saw the rise of passive. You’ve seen the impact that that’s had on financial services, on investment, on allocation, and you’re writing a lot about what that’s doing to capital markets and why some of the things that were valuable earlier on in your career might be even more important now.

Bob: Well, we’re in a new world, right? Where most of the capital today is passively managed. That’s a new paradigm. That has historically not been the case. And there are implications of that, clearly. And I do think that I would suggest that Mr. Market is more manic depressive today than he was in the past, because the flow of funds is not necessarily predicated on... You fit the results to the stock price movement and justify the price you pay because it’s worked out that way. It isn’t necessarily a leading indicator that you’ve done the analysis to say that’s gonna happen.

So the world has set up the opportunities. And of course, in that process, the stocks that have not done well have been forgotten about and thrown away, and you don’t even think about those. Why would I even waste a moment of time?

Occasionally, when I will talk to someone... And, and better businesses, I love that. So one of the companies is — I would say, “Oh, I do a lot in energy services.” And then they would look at me and go, “Hmm. Oh, I own a little...” They would mention one company, and they said, “It’s an asset light company, so therefore it’s a good energy company, ‘cause it’s asset light.” And I’m like, “No, actually, maybe that company only has intangibles, but its capital commitment is every year they have to spend out and go buy and create new intangibles.” It may be asset light, but it’s not capital light. And if you look over the last 10 years, the dividend is about all they’ve generated in terms of return.

And so therefore, you think you’ve got a better business because it doesn’t have a hard tangible asset, and I’d suggest that it actually has, that intangible asset costs just as much money as that tangible asset. So a misclassification about what is asset light, and therefore why is that a great attribute potentially or not?

Bogumił: Bob, what I’m hearing — and you mentioned so many things here — is it’s much more optimistic, and I like that, and I subscribe to the same philosophy, that with more passive participation and people not paying attention to what they actually own, for people like you and I and Matt, there are more opportunities because there are fewer people that actually look at the business, open the annual report, look at what the business does.

And from what you actually mentioned, there might be better opportunities than the ones you remember when Walter Schloss was picking stocks. Are we onto something here?

Bob: No, no, I definitely think that that’s the case. I definitely think that what has been given up and forgotten and moved away from means that valuation is discounted, and therefore those are real opportune situations.

Bogumił: And if anything, it’s harder and harder... Well, the setup is very unique because the ask is to beat the market, right? The market is no longer an independent benchmark that we just observe. It’s a benchmark we can invest in, and it’s a benchmark where, I don’t know, now half of the assets are invested passively or more. So for an active manager to take a contrarian view, like the ones you’re presenting today, it takes a lot of courage, and it’s a huge ask to be able to invest this way because everything is against you. You have to prove that your performance is doing very well on some short-term basis, and by definition, it’s impossible to take a long-term view, especially if you’re managing outside money.

Bob: So that’s what’s happened the last couple years. Our performance really has been good. We’ve outperformed the S&P. And as a result of that, that means our historical performance from inception has outperformed the S&P. But there’s still no capital inflows. And so people aren’t looking for that. So even there.

And there’s a couple of mutual funds that invest in some of the same companies that we invest in, and I see the flows there too, and there’s a little bit, but there’s really not much. Because they don’t have an ETF. And if you don’t have an ETF, there’s no fund flows. So, kinda where capital flows and what it does and where it goes.

I think when you say 50% of the money is passively invested, of course the reality was that 90% of the money is passively invested, ‘cause forever active managers have been closet indexers also. So therefore, what people do.

And, you know, for one of the interesting data points of capitulation, following the trend, is Terry Smith, Fundsmith, has had historically great performance, and the big news of course is that he’s realized that, well, momentum is actually a key factor. And so therefore we’re going to incorporate that into our processes. And so this capitulation from someone who owned better businesses, that the better businesses then suddenly it got competitive. And therefore the earnings growth wasn’t so good, and the multiple was too high, and so therefore the performance was... There’s a headwind to it. And now saying, “Well, I’m gonna follow the trend ‘cause the trend is my friend,” and so therefore more capitulation. So more opportunity for people who...

And then I do think there’s a... Sir John Templeton was known for a comment that said, “To outperform the market, you have to do something different than the market.” And so Curtis Jensen, one of my colleagues, used to run, he was the chief investment officer at Third Avenue Value with Marty Whitman. And he mentioned that. He said, “Oh, that’s what Templeton said.” And I said, “Well, of course, Curtis, you have to realize for the 10 years past the financial crisis,” — this was two, three years ago — “anybody who followed that axiom got their head handed to them ‘cause nobody outperformed the S&P. Unless you were in the Nasdaq 100.” So there was no outperforming the S&P over an extended period of time. So an axiom that people had, that to do better than the market you have to do something different than the market — well, that’s been thrown away. That’s ridiculous. If you do that, you’re just gonna underperform.

And so I would suggest that, once again, there are cycles, and you’ve set up the return, the vengeance of that. And I did that. So two years ago, I had a dinner, and I called it the Restoration of the Fallen. Using the quote, the piece that Graham starts off Security Analysis with, from Horace, and says, “Those who have fallen shall rise again. And those in honor shall fall.” And said, “It’s already happened.” Stock picking is already coming back and outperforming. And it will, because of the opportunity set and the valuations on securities and individual analysis.

So when I go to talk to a student, I say, “You are in a great position ‘cause the world’s gonna change. And if you’re doing security analysis, you’ll be doing something that nobody else does, that even people my age don’t do that anymore because that doesn’t work.” And so therefore, it’s been thrown away. So therefore, it is clearly the place to be, and nobody else is practicing that.

I think Michael Green, what’s his name, Michael Green says — one of the statistics he has is that 10% of the purchases and sales of securities are based on individual security selection.

Matt: Wow.

Bob: So the money’s flowing through an algorithm, an index, whatever. And it’s in a home building index. And then, oh, the home builders are gonna do poorly because of this thing. Sell them all.

Matt: Yeah.

Bob: You know, you have one day where home... Because Trump says he’s going to buy mortgages, and therefore the presumption is that’s gonna be great for home building. Home Depot’s up 16% in one day. Home Depot up 16% in one day because Trump says he’s gonna do something that, if he does it, probably has relatively modest impact on the market anyway. And who knows if Trump does whatever he says he’s gonna do. So therefore, the market yet responds and rewards this company tremendously.

So the flow of funds is creating Mr. Market, who’s more manic depressive, who is buying things and selling things at points without regard to what are the real fundamentals, especially what are the real fundamentals on a three to five-year basis. Because the world’s time horizon has continued to shrink. There is no such thing as delayed gratification anymore. What’s it gonna do the next two weeks? That’s what I have to do. And of course, that is not investing, right? That is, you know, you can fool yourself into somehow maybe thinking you’re an investor. You’re not. You’re clearly a speculator.

Matt: And I feel like on that, it’s really the attention span has decreased. The time horizon is the time horizon.

Bob: No. Well, but I also think it’s the environment. Because the environment is the news flow and data information is just so fast and so rampant. There’s a new piece of data every second that the market has to be able... They have to act on that. They can’t just listen to it and think about what it means. No, no, no, no, no. And I gotta have an ETF ‘cause I gotta buy it this moment. A mutual fund won’t do any good ‘cause I can only do that once a day. What’s the advantage of having to do it moment to moment to moment?

So the world’s information is more prevalent. Things have to happen based on that. That shortens time horizons, and therefore that gives opportunity. Because I frequently see that. I see a news piece and there’s something negative, and the stocks trade down, and I look at that piece of news and I say, “That is a great piece of news.” Because what that means is, over the next three to five years, there’s another guy who’s getting out of this business, who’s not investing in this business, who’s pulling back from that business. And Economics 101 will mean in three to five years, that is a more interesting business. So that negative news today is positive news for what the opportunity set is in the next three to five years.

And if you have the right time horizon and perspective, and the right capital — because you can’t do this if the capital that you have is capital that is short-term and focused on the short term. And therefore, because they won’t be there with you. And so therefore, that is critical. We don’t have a lot of money, and I didn’t start with a lot of money, but the money I’ve had has been with me for a long time, and it’s compounded with me, and is extremely patient money. That’s hard to get.

Matt: I wanna just drill into this a tiny bit more, how a bad period creates a positive investment environment, because I think that’s a really important truth that you’re getting at here, and it’s hitting different in this era that we’re living in because of all the things you just described.

Bob: So, one of the industries that we’ve been successful in is, in ‘08, ‘09 when home building in America had its worst depression maybe ever. Who knows? Maybe even worse than the Great Depression. So the business imploded, and so we looked around and we invested in Builders FirstSource, who’s a distributor of lumber and lumber sheet goods to home builders.

And of course, that business is one in which you went from building 1.7 million homes to building 500,000 homes, so the business imploded. Most everybody went bankrupt. Builders was the only company that didn’t go bankrupt, although it was financially stressed during that period of time.

But what it also meant was, when we bought shares in May of ‘09, we thought we were buying it... And we did buy it really cheaply based on the normalized earnings of the business. The fact of the matter was, normalized earnings of the business was gonna take a lot longer to come back. Because when you built 1.7 million homes and you only needed a million, and you did that for two years, there’s a million homes that effectively are owned by someone who’s a transitory owner. Because you gave away mortgage money for free, someone was able to buy the home, and of course, they’re really a renter. And after they’re in the home for a year, they default on it, and you can’t get rid of them for three years. But eventually, that home has to find a permanent owner. So there’s two million homes that had to find a permanent holder, and so therefore you didn’t need to build homes.

So the business stayed really difficult, and what that meant was there was continual retrenchment and consolidation. And so I did say that. So not long ago, I was at lunch with Paul Levy, who’s the chairman of Builders FirstSource. And I said to him, “Paul, the best thing that happened to this business was how long it took to recover.”

Because what happened was in 2015 — so long after the implosion happened and started — that’s when you got capitulation. You had ProBuild, owned by the Johnson family, who’s the number one participant in that market, decide they’re not gonna put another $100 million into keeping that business afloat. “That’s it. We’re out. Sell the business.” And you at Builders FirstSource were able to buy that company, and therefore significantly increased your position, and did that all with borrowed money, and therefore leveraged this business up at a low point in the cycle and bought that competitor.

At the same time, BMC, which we had bought out of bankruptcy and I was on the board of, and had never traded in a public market again, was approached by Gores Group, who had recapped another company and had taken it public and was looking for an exit. And so by reverse merging us to take them over, made a bigger company, and then therefore that facilitated that.

So those two mergers happened in 2015, where the three and four guy merged and the one and two guy merged. Had the business recovered, that wouldn’t have happened, ‘cause the Johnson family wouldn’t have had to put another 100 million in. They still would’ve been there. So those competitors would’ve been there. And even then, the business still took longer to recover. And so eventually, BMC and Builders merged together.

So at the end of that 12-year period, four of the five largest companies were consolidated into one company. Had recovery happened, it would not have happened. It would still be a fragmented business. Instead, you have one competitor in that vertical who has substantial market share. That could not have happened if you did not have a prolonged, protracted, difficult period of time. And the business in the meantime is transformed, and therefore the stability of the earnings today, the outlook for the business, is vastly different than it could’ve been for any of the competitors.

And again, when you think about that, frequently people will look at things like this and say, “Well, the last time they had a good year, they had EBITDA margins of, and therefore valuations were this.” And I’d be like, “Stop it. You can’t think that way.” This is a clean piece of paper. The competitive landscape of this business and the consolidation that’s happened — the past model is some indicator, but it is not indicative of what the earnings power of this business is.

Bogumił: Bob, what you just brought up shows yet another unique quality about how you approach investing. You take on sometimes a more activist role. You just mentioned you’re on the board of one of those companies. Activism seems to be a dying art. It’s not an easy thing to do. Can you explain this approach, and why you do it? How does it help you to get more involved than a traditional public equities investor that’s just waiting for things to happen?

Bob: Well, I would suggest I’m not an activist. I would say that’s a mischaracterization. I’m an active owner, right? ‘Cause as you pointed out, and one of the key factors that Lynch’s book highlighted to you is you’re buying a fractional interest in a company. And so therefore we’re fractional interest owners in businesses that we think have really long-term opportunities, and therefore we spend as much time as we possibly can getting to know the people, whether that’s the management, the board, the other shareholders.

And if we have ideas and thoughts on that, we try to share that with people. And in certain situations, we’ve said, “Gee, we’d like to be on the board,” ‘cause we’re an owner who has a long-term interest in it. And when it fits the company’s purpose — ‘cause the CEO was concerned that a lot of the other investors were banks who didn’t wanna be shareholders, who wanna sell the business, and instead I wanna buy the company ‘cause I think there’s a 10-year opportunity. He wants me to be the shareholder in the company as opposed to the bank who’s looking to sell this thing at the first chance he can get. And so therefore, I give stability to his job, and so therefore it served his purpose to say, “Oh yeah, sure, we should help get Bob on the board.”

So then I was able to play a role in that process. And I didn’t necessarily change the course of direction when I was on that board, I don’t think. I don’t think I necessarily added much value, other than I did add value because I cut the compensation for the directors and the CEO.

So I was on the comp committee. We had a discussion, and I went through, and... It had come out of bankruptcy three years earlier. When companies come out of bankruptcy, they award these huge grants to people, and so the grants were running off, and they were gonna re-up them. And I’m like, “Whoa, whoa, whoa, whoa, whoa, whoa. The other directors are gonna get how many restricted shares? And the second level senior management is gonna get a third of that? If one of us drops dead tomorrow, there’s 100 guys who will raise their hand and take our job. Where do we get that guy if something happens to him and he gets hit by a bus? He’s critical to the business. We’re not. We’re interchangeable. The idea that we would get more than what they would get just makes no sense at all.”

And so therefore all the directors got paid less money. And then the CEO had been a CEO for two years and they said, “Well, we need to re-up him.” And I’m like, “No, no, no, it was a three-year grant he got. Three years. Next year’s the third year. Next year he can get potentially some grant, not this year.”

So of course that got me kicked off the comp committee, and eventually it got me kicked off the board, because I cut the CEO’s pay and the directors’ pay. So other than that, I didn’t... But what I did do is I get the granularity that you understand real estate, which is a local business. ‘Cause what the business is in Jacksonville and what the business is in Salt Lake City and what it is in Seattle — different products, different customers, a lot of different things. So therefore, there’s a lot of granularity that is lost in the consolidated numbers that you get. So therefore, the appreciation of that fact and understanding adjacencies and therefore understanding opportunities that kinda come from that, and having a network of people that I know and know me that I can ask and find out opportunities for. So it’s a great opening for new opportunities to find really interesting investments to have from it. And occasionally, I get to add some value in the process.

Matt: Speaking of adding value, you’ve had some opinions on this that I’ve very much appreciated in your writing, and there’s a number of angles here. So I’m gonna let you take it from whatever angle you wanna start taking this from, because it’s infiltrating everything. I wanna talk about private equity, both what it’s doing as we’re offering it to more and more retail investors, which comes with all sorts of problems, and then also, as an investor yourself, how you think about private equity in the equation.

Bob: So, it’s a great place to be. If you’ve been a private equity manager, it’s been a phenomenal business, right? And hard to understand how that could possibly happen if you take a business that started when interest rates were 15%, and they’ve gone to zero, and you levered things up. Gee, amazing, that did well.

Of course, what ends up happening to anything that does well, it’s overdone. And it’s a vastly different business today, right? So when it started, LBOs were smart guys who identified a public company trading for far less than what it was worth, who bought control of the company, levered it up, figured out how to extract the value from it, and the returns were all predicated on you made four or five times your money. So it was all about the return that you generated, and your participation in that was how you made money.

Today, it’s an asset accumulation business, right? Money continues to flow in. You figure out what to do. You go to an auction, and if you outbid everybody else, then you own the business, and the business you own is one that it’s a universe that buys and sells businesses largely to themselves. So companies, once they get into the private equity-owned universe, they stay there.

And of course, intuitively I think to myself, “So wait a second. The guy who owns it today is the fourth guy who’s owned it or the fifth guy who’s owned it in the last 25 years, by paying more than anybody else who showed up at that auction was willing to pay.” And what do you think a business looks like that for the last 25 years has been owned by five guys whose intent is to put no money into the business and take out whatever I could out of the business? So what is the state of those companies that you’re paying highest price to bid to own? So just intuitively...

And we see that through some of the public companies we’re investing in. So, another aspect maybe of grassroots macroeconomics: when we own Westlake Chemical and we see who Westlake competes against, and we see that that’s a Clayton Dubilier subsidiary that they’ve owned forever that they can’t get rid of, that when I talk to the debt people, they basically tell me that the debt holders wouldn’t get recovery on what that business would trade for today. So what’s the equity worth? And of course the equity as well, they’re not gonna do anything with it because it’s not worth anything, so it’s at least an option for them to hold onto it. But that company today, Westlake must love to compete against them because they haven’t invested in the business and it’s been mismanaged.

Or Onex who owned Gelwin. So Gelwin’s a duopoly and they can’t make money. The business has been horrible. The debt trades at a huge discount. How do you have a duopoly where you can’t figure out how to make money in the business? It’s been that mismanaged for that long.

So I just think that there are all kinds of issues. And of course, you haven’t been able to raise capital in private equity because the bid-ask spread is too wide. I’m not gonna sell it for less than I’m carried at in my books for. And any buyer’s like, “Yeah, but I’m not gonna buy it for that price.”

And the idea that now you’ve democratized that is horrible. So there are people who don’t understand what they’re doing, who are investing in things. And Evergreen Funds, it’s kind of, well, there’s no day of reckoning that’s really there, so you can kick the can down the road forever. And the idea that we’re putting retirement money into those kinds of assets is just, it’s a tragedy. How could it possibly end well?

And yet that’s why there’s so many fewer public companies, right? Because at one point they got taken private, and they’re private, and they stay in that private universe. They don’t come back here. So that’s what I think is... Intuitively you could understand how in the public market you could buy a business for a much lower multiple that potentially is unlevered, that may even have cash, and if you do the same thing in the private markets, you’re paying a much higher price. You’ve got all the constraints and liquidity, the fees that you pay, and all of those kinds of things.

You know, here we live in this odd world where in public markets it’s like, “Oh, I only wanna do an index fund. I only want to pay two basis points. I don’t have to pay any money.” If you pay any money for management, then your returns are gonna be horrible. No — if you’re in the S&P 500, which the gross return is outperforming everything, it’s not the fee that makes that a good investment, it’s the gross return. And that may not perpetuate forever. So it’s not the fee.

And at the other end of the world, in private equity, it’s like, “Yeah, I’ll pay a management fee. I’ll pay a performance fee. Who knows what other expenses leak into that thing. I’ll lose liquidity and all.” So how do those two things coexist in the same world? They’re the antithesis of each other, and yet that’s where everybody wants to put their money, in one of those two things.

Bogumił: I don’t know how it all rhymes, but I feel like it’s all connected somehow — between the private equity, the way you describe it, which is a very different private equity than the one that we know from a few decades ago, passive investing, and the fact that we talk about the active role, that the management has no one really to talk to among the shareholders because the company’s owned by the three major providers of index funds.

So your voice actually, Bob, might be the one that’s heard by the management because nobody else is reaching out and even calling them. So even if it’s a vocal participation, I think that’s helpful, that the management can hear how the investors really feel. I don’t know. I find it fascinating. I feel like somehow it will snap back. I don’t know when and how, and maybe going back to where we started this conversation, it takes a long time, and then the history speeds up. Maybe at some point, all of those things we mentioned will snap back.

I wanna ask you about something that came up a lot in the conversations I’m having out in Talking Billions. You know, 200 people I had on the show over the last four years, and now and then people tell me they bought the right stock at the right price, but they were not in a position to hold it long enough. And I wanna bring up a story that you shared, that the biggest loss of your career did not come from a stock that went down, but it came from a winner you sold far too early. I think it’s very relatable for this audience and many people. Can you talk about that?

Bob: Sure. Go ahead, dredge up those things and open the scab wounds out on my arm. But it’s good to remember those things.

So that’s what it was. In 1997, there’s a company out of Richmond, Virginia, by the name of... At the time, it was Ethyl Corporation, and they eventually changed the name to NewMarket, controlled by the Gottwald family. The Gottwald family have a history of really great capital allocation. And what they had done with the company was they had been consolidating their industry, and it was additives for lubricants in engine motor oils and other things. And they bought out Texaco’s business. They bought out Amoco’s business. So the industry had been consolidated to four guys. They were the smallest, and so theoretically, they’d be the guy who we continue to buy.

The problem was the larger guys were, one’s a Chevron, Conoco subsidiary called Oronite. Another one was a Shell, Exxon company called Infineum, and the last one was Lubrizol. And so that consolidated industry was one that they helped consolidate. And they looked around and they said, “Well, neither one of those guys are gonna sell, and so what do we do?” So they decided to buy back a lot of stock. So they levered up, bought back a bunch of stock. The family didn’t sell any stock into the offering, and they did that at 45.

And so a year later, the stock’s at 35. And so I’m like, “Well, Gottwald family’s smart. Clearly they thought it was worth more than 45. And so if I could buy it for 35, I’d get to buy it for less than what they did.”

Of course, the facts that had happened in the meantime were that Oronite had built a new facility in Asia ‘cause the Asia market was growing like a weed. Of course, then they built that facility in 1997. So in 1997, 1998, they have a new facility coming on, new capacity, and then the Asia financial crisis happens. So the market implodes.

At the same time, the largest volume of business they do is engine motor oil additive. And so Pennzoil and Quaker State, two of the largest customers, merge. And so they come back to all the four suppliers and say, “Okay, who’s the guy with the lowest price? You get all our business.” And so everybody else then was competing with each other. So margins got tight. They had levered up.

And so the next thing you know, the stock continues to go from thirty-five down to four. And so there’s a solvency even concern that something could happen, so they have to do things to make sure the Gottwald family can keep control of that company and not lose the company. And having an owner/operator was a critical factor, ‘cause I was convinced that the Gottwald family did not want to tarnish their reputation and lose that money. And it’s the namesake of how they made their family’s wealth. So they would do what they could. And at the time when it’s at four dollars, the company’s market cap is lower than their R&D spending is every year. So the disconnect between what’s the economics of the business and what’s the market price of this thing.

So in the interim, a number of things happened. So one, it’s been generating free cash the entire time. So the debt now has been paid down even through the difficult time. And, importantly, Lubrizol, who said they were a growth company even though this business is a two percent grower at best, and therefore there really was no growth, acted that way. They bought a company that made additives for hair care products. That clearly was a growth business. So when they diversified and bought that other company, they changed their business model in this business to say, “We’re not gonna run for cash. We’re not gonna try to grow the business.” So they shut a facility or two, they took capacity out of the market, and things started to adjust.

So the stock starts to recover. But in that process, when the pricing now improves because Lubrizol’s doing things to be constructive in the market as opposed to destroying the profitability — unfortunately, oil price goes up, and oil is a key raw material. So when the oil price goes up, the margins they had gotten from increasing the price went away. So they look around and they raise the price again. And then soon enough, oil price goes up again, and the margins disappear again. So this happens, like, four times.

So now I’m buying the stock, and I go to the CFO and I say, “Hey, David, next year you’re gonna do $4 in free cash.” The stock’s 15, and the debt’s pretty much all paid off. Like, this stock is extremely cheap. And so first off, he says, “Bob, from your lips to God’s ears.” Two, three years ago, I was concerned that it was gonna have a bankruptcy, so all I see is trees. I can’t see the forest, ‘cause every day I run into a new tree, and so that’s my perspective. That may be the case, what you’re saying. We’ll do that.

So in the meantime, I’m like, well, clearly there’s pricing power that the industry has, that at some point oil prices will go up, and therefore the margins will come back, and you’ll grow earnings. And that’s why you did this to begin with. You consolidated the industry, so now there’s only four players. And many of the products, a customer deals with one or two of them, and they do that R&D — ‘cause it’s really more development, not research — and therefore modify their products to fit perfectly the customer’s use. And therefore, the customer has one of two guys to go to. So it’s a limited market. They’ve got these little niches. They’re doing this work. They’re developing new products and continuing to grow, and therefore now getting really good margins, and the benefit of what they’ve consolidated the industry.

So I go out and I buy a lot of stock. I buy a lot of their debt. I said, “This is gonna work.” And then a year and a half later, it works, and they’re earning $4, and I’m feeling like a hero, and I’m patting myself on the back. And I’m like, “Yeah, I told you.”

And then the stock goes to, like, 39, and I’m like, “39, $4? I don’t know. The business isn’t that good a business, you know? So maybe I should start... This is probably good. I should take some money.” I start to sell stock, and then after I start selling stock, not long after, the company buys back stock at 48. And I’m like, “Buying back stock at 48? Oh, well.” And then I’m selling more stock, and the next thing I know, they’re buying back stock at 62. And I’m like, “62?”

‘Cause of course what really had happened was, it was the manifestation of what they were doing in the late ‘90s, consolidating the industry, the position it was in. And the earnings were really now growing, and therefore it was coming to fruition. And here I am selling the stock, selling the stock.

So I eventually sold the balance of my stock, after I got a $25 dividend on my $15 cost, for $275 a share. So 300 bucks for $15, and I’m selling it at 40, 45, 50, 55, 60, and therefore giving away multiples of the money I lost when I had to cut a position and then it went to zero.

So in these industries that have these really long-dated things, this consolidation that’s happened, potentially the industry is fundamentally different than where it was in the past. The runway of recovery and opportunity, especially from smart people who are allocating capital, who are doing things...

And people often... One of the complaints that companies have is, “Oh, I don’t have that many shares outstanding and the liquidity is low, and if I buy back stock that’ll hurt liquidity and therefore I don’t wanna do that.” In the meantime, the Gottwalds bought back stock and the liquidity went through the roof, ‘cause the earnings went through the roof, and therefore the volume changed, because instead of having people who owned it and owned it forever, there was more interest and turnover in the process. So it wasn’t the number of shares that had an impact on how many shares traded.

And in the meantime, the valuation when stock is illiquid like that is, you’re buying probably stock back at a fraction of what the business is worth, and you’re creating economic value that is permanent, as opposed to guessing on something in the interim that maybe someone will come along and buy the stock and it’ll trade up.

Matt: I love you highlighting all of the variables here, because so often people have that conversation and they put their hand over different parts of the variables when they’re telling that story. And they all play in. You could buy back stock and still increase supply. You could have all these factors playing out.

Bob: Right.

Matt: Bob, I wanna ask you one of our closing questions before we let you go. If you could teach one lesson to the average investor, what would it be?

Bob: Well, first off, figure out, look at companies, do analysis. I hate when people say, “Are you investing?” “Oh, yeah, I’m investing.” And then I say, “What are you investing in?” And they tell me what index they’re investing in. I said, “What are you learning from that process?”

But invest in a company. Look at a company. Hopefully, maybe you’ll make a mistake and you won’t even pick a good stock, but that’ll be good ‘cause you’ll learn something. So therefore, the education process associated with doing research and thinking about businesses and valuations is a critical component of being, I think, a successful investor over time. And anybody can do it. And you keep at it and try it.

And, most importantly, in the next ten years, that’s how you’re gonna differentiate yourself and be able to make better returns than owning that index and trying to trade around it, or, “I wanna buy housing, and so therefore let me buy that index,” or, “Let me sell that index.” It’s encouraging you to be a speculator as opposed to be an investor. Being an investor is a much better way to go.

In the meantime, I also do believe that Berkshire Hathaway is probably a really interesting company, ‘cause the view I have — so this reindustrialization of America. ‘Cause a big part of Berkshire really is all these industrial businesses they bought. And I do think that Greg is thinking about all those businesses and focusing attention and time on them, as opposed to, you know, Buffett bought them, they’re part of the group. They’re kinda like, whatever happens kinda happened. As opposed to, no, you can do more with those businesses if you think about them.

And that is industrial America. There are all these industrial America businesses that... We have this reindustrialization of America. That is a clear way to have a broadly diversified group of industrial businesses that are well positioned for what I think is a macro trend. So top-down macroeconomics, but a macro trend that has huge stability given this low cost of energy advantage that North America has. And I say North America ‘cause I also emphasize North America in my mind is an economic unit, which is Mexico, the United States, and Canada. So that group has competitive advantages, and together as a group has a much better opportunity set than punching the other one and kicking the other one.

Matt: It’s a really important perspective, and we might have to have you back to just have a Berkshire Hathaway, Warren Buffett conversation on what that portfolio looks like and how to think about it, because I do not hear enough people with that perspective, and it’s so very important on where that could go.

Bob: Thank you, Matt.

Matt: Bob, I wanna thank you for the time. I want you to tell people where they can bug you on the internet if they want more information.

Bob: Well, I don’t know. It’s www.robotti.com. I don’t know. It just goes to show how, like, a neophyte I am when it comes to technology and whatever. So of course I do some podcasts and I shoot off my mouth with all these ideas, and try to go out of my way to debunk conventional wisdom, and question it, and you should question it, and you should...

Data and information is no substitute for thinking. Think.

Matt: Bob, remarkable conversation. Bogumił, thanks for doing this with me.

Bogumił: Thank you.

Matt: You’re watching Excess Returns. Like, comment, subscribe, all the things below, and we are out.

Bob: Thank you, Bogumił. Thank you, Matt. Appreciate it.