Robotti & Company Advisors Q1 2020 Letter

Theme and Background

This chapter is Robotti & Company's Q1 2020 letter to investors. Set against the backdrop of the COVID-19 pandemic, the report views the crisis as a "temporary event" but one that will act as a catalyst accelerating structural economic changes. The author emphasizes the team's 40-year focus on uncovering overlooked contrarian investment opportunities and notes that preparations for remote work were already in place.

Core Views

• Crisis as a Catalyst, Not an Endpoint: The pandemic is a temporary event but will generate lasting positive economic changes, rather than focusing solely on negative impacts.
• Counter-Intuitive Judgment: In times of market panic, remain calm and leverage "time premium" to focus on long-term fundamentals rather than short-term volatility. The author cites historical examples (e.g., the 1962 Cuban Missile Crisis) to argue that buying during extreme panic is often the right move.
• Active Avoidance of U.S. Shale Oil: The report explicitly states it has "never and will not" invest in companies related to U.S. onshore shale oil, deeming their production uneconomical even under high oil prices.

Key Arguments and Data

1. Remote Work Potential: A University of Chicago study shows that 34% of the workforce can work from home. Employers will compare remote worker productivity against rental costs, and some may permanently adopt hybrid models.

2. Acceleration of Telemedicine: The pandemic has forced patients, doctors, and governments to accept video consultations, replacing the previous insistence on in-person visits.

3. Efficiency Gains in Residential Construction:

• Adoption of virtual permitting and inspections has "risen sharply" (despite a decline in total permits).
• Support from GSEs (Fannie Mae and Freddie Mac) for manufactured housing has further accelerated during the crisis.

4. Oil Market Reset:

• U.S. shale oil production is "uneconomical even at high prices."
• High decline rates combined with price war pressures will force output reductions, ultimately balancing global supply and demand.

Sector	Key Data/Trends	Investment Implications
Remote Work	34% of workforce can work from home	Commercial real estate demand may decline; tech tools benefit
Telemedicine	Acceptance of video consultations forced to rise	Growth in healthcare IT and remote diagnosis platforms
Residential Construction	Virtual permitting adoption rises; GSE support accelerates	Manufactured housing and construction tech companies benefit
Oil	Shale oil production uneconomical; high decline rates	International oil and gas companies outperform U.S. shale oil

Companies/Assets Mentioned

• Zoom / Duo: Cited as typical examples of remote work and video communication tools accelerated by the pandemic.
• Fannie Mae / Freddie Mac (GSEs): Accelerated support for manufactured housing benefits the residential construction sector.
• U.S. Shale Oil Companies: Explicitly bearish, deemed uneconomical; the report holds no positions in any related entities.
• International Oil and Gas Companies: Bullish, with improving economics; a key focus of the portfolio.

Investment Insights

• Focus on Long-Term Structural Changes: Investors should pay attention to trends accelerated by the pandemic, such as remote work, telemedicine, and efficiency gains in residential construction, rather than short-term volatility.
• Avoid U.S. Shale Oil: The report explicitly advises staying away from this sector, citing fundamental flaws in its economics.
• Buy During Panic: The author draws on historical experience, arguing that extreme market panic presents opportunities for contrarian buying, particularly in overlooked companies with solid fundamentals.
• Focus on Manufactured Housing and Construction Tech: Accelerated GSE support and the spread of virtual permitting may create investment opportunities in the residential construction space.