Robotti & Company is a New York deep-value boutique founded by Bob Robotti in 1983, specializing in left-for-dead cyclical industries — energy services, building products, shipping — with multi-year holding periods and occasional activist letters. It manages about $650m; Bob is regarded as one of the most steadfast Graham-tradition cyclical value hunters.
This is a letter from Robotti & Company to its clients in 2016. The main idea: investors are piling into 'safe' assets like utility stocks, telecom stocks, and high-grade bonds, but their prices are so high that they've become risky—similar to the blind optimism before the 1929 crash. The author argues that unloved energy stocks (natural gas, oil) are actually improving in fundamentals and are cheap, making them real opportunities. For ordinary investors, don't chase overpriced 'safe' bets; instead, look at overlooked, undervalued sectors for better returns.
Robotti Research Report states that its portfolio outperformed market indices (such as the S&P 500 and the Russell 2500 Value Index) in both the most recent quarter and the full year, attributing this to a disciplined, research-driven investment approach that avoids market noise. The report's core a
This chapter is a quarterly letter from Robotti & Company to its clients (dated July 25, 2016). The report reviews the portfolio's recent outperformance relative to market indices and delves into the characteristics of the current market environment—low interest rates and high risk aversion in the post-financial-crisis era, along with investors' blind pursuit of "safe assets." The author argues that this market sentiment creates opportunities for contrarian investors.
The author's central investment argument is: The current market's fervor for "high-quality safe" assets (such as utilities, telecom stocks, and high-grade bonds) completely disregards the importance of valuation, mirroring the market mindset just before the Great Depression of 1929. The author believes that buying so-called "safe" assets at excessively high prices actually exposes capital to significant risk rather than providing true safety. Conversely, the "risky investments" shunned by the market (i.e., the discounted holdings in the author's portfolio) represent the real opportunity.
Counterintuitive Judgments:
1. Market Behavior Compared to History:
2. Specific Market Data:
3. Energy Fundamentals:
4. Portfolio Performance:
This chapter does not mention specific company names but covers the following asset classes and sectors:
1. Avoid Overvalued "Safe Assets": Utilities, telecoms, high-grade consumer staples, and tech stocks currently reflect perfect expectations in their prices. Chasing them further exposes investors to significant downside risk.
2. Focus on Recovery Opportunities in the Energy Sector: Natural gas prices have already risen 40%, oil prices are stable, U.S. production is declining, and demand is rising—fundamental trends are positive. Energy stocks remain in a state of market pessimism, and valuations may be attractive.
3. Adhere to Contrarian Investment Discipline: Market irrationality can persist for a long time, but capital ultimately flows from the "active" to the "patient." Investors should remain patient, hold thoroughly researched, discounted positions, and wait for market cycles to turn.