Value investor John Rotonti Jr on Industrials, Infrastructure, and the Inversion | S07 E09
Mar 10, 2025
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John Rotonti Jr., a seasoned portfolio manager at Bastion Fiduciary, dives into the complexities of investing in industrials and infrastructure. He discusses the importance of holding cash reserves while targeting high-quality growth businesses. The conversation touches on the current housing market challenges and the impact of tech giants on affordable homes. Rotonti also analyzes Buffett's recent insights for Berkshire Hathaway and the implications of market inversions on future economic stability, underlining the necessity of strategic investments.
The portfolio manager emphasizes a disciplined investment strategy focused on high-quality, growth-oriented companies within industrials and infrastructure.
Challenges in the housing market, driven by supply shortages and rising costs, highlight the need for increased new home construction.
Market volatility and cautious sentiment reflect skepticism about economic growth, suggesting investors should temper expectations for future returns.
Deep dives
Investment Strategy Update
A recent portfolio manager shared insights into his approach and updates since launching a new investment strategy focused on industrials and infrastructure. He manages a long-only, domestic portfolio of about 30 stocks, currently with a significant cash position of nearly 30%. As the market offers investments, his strategy includes a disciplined selection process aimed at high-quality, growth-oriented companies that are reasonably valued. The portfolio's current cash level allows for flexibility while waiting for favorable investment opportunities.
Understanding High-Quality Businesses
The characteristics of high-quality businesses within the industrial sector were discussed, highlighting their performance metrics and classification challenges. Notably, companies like Visa and Amazon were cited as part of the portfolio, showing diverse attributes that qualify them as infrastructure-related despite not being traditional industrial companies. This classification expands to various aspects of operations, from payment networks to supply chain management, which illustrates how technology has greatly influenced industry definitions. The focus remains on investing in companies that display strong profitability and growth potential while rejecting lower quality options.
Housing Market Dynamics
The current state of the housing market presents notable challenges with a significant supply shortage affected by various economic factors. The discussion highlighted that many potential homebuyers are locked into lower mortgage rates, contributing to stagnation in existing home sales. Rising input costs due to inflation and tariffs further complicate new home construction, causing housing affordability issues, particularly for first-time buyers. Over time, demand from a growing millennial demographic exacerbates the supply-demand imbalance, suggesting that more homes need to be built to alleviate these pressures.
Market Sentiment and Economic Indicators
Concerns regarding market volatility and economic forecasts were addressed, with a particular focus on the implications of recent trends in GDP predictions. The Atlanta Fed's GDP now model suggested a volatile adjustment in economic growth estimates, reflecting skepticism about future expansion. Commentary from experienced investors pointed to a cautious market sentiment, with phrases like 'stagflation' being invoked in relation to slowing growth and rising prices. This sentiment is reflected in market behaviors and highlights the unpredictable nature of economic conditions.
Long-Term Investment Considerations
The podcast included a deeper exploration of long-term investment strategies and potential returns in the current market context. Analysis of historical returns demonstrated that expectations for future performance should be tempered, given high valuations and uncertain economic conditions. Various hypothetical scenarios projected different outcomes for long-term returns based on factors such as margins, growth rates, and PE ratios, indicating a possible period of lower returns. The discussion emphasized the importance of understanding each company's potential and market dynamics to make informed investment decisions.
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, and Jake Taylor. See our latest episodes at https://acquirersmultiple.com/podcastWe are live every Tuesday at 1.30pm E / 10.30am P.About Jake Jake's Twitter: https://twitter.com/farnamjake1Jake's book: The Rebel Allocator https://amzn.to/2sgip3lABOUT THE PODCASTHi, I'm Tobias Carlisle. I launched The Acquirers Podcast to discuss the process of finding undervalued stocks, deep value investing, hedge funds, activism, buyouts, and special situations.We uncover the tactics and strategies for finding good investments, managing risk, dealing with bad luck, and maximizing success.SEE LATEST EPISODEShttps://acquirersmultiple.com/podcast/SEE OUR FREE DEEP VALUE STOCK SCREENERhttps://acquirersmultiple.com/screener/FOLLOW TOBIASWebsite: https://acquirersmultiple.com/Firm: https://acquirersfunds.com/ Twitter: https://twitter.com/GreenbackdLinkedIn: https://www.linkedin.com/in/tobycarlisleFacebook: https://www.facebook.com/tobiascarlisleInstagram: https://www.instagram.com/tobias_carlisleABOUT TOBIAS CARLISLETobias Carlisle is the founder of The Acquirer’s Multiple®, and Acquirers Funds®.He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014) (https://amzn.to/2VwvAGF), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) (https://amzn.to/2SDDxrN), and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016) (https://amzn.to/2SEEjVn). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam. He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
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