🗣️ Investor Talk #34: John Rotonti Jr

Portfolio Manager - Islamorada Investment Management

Welcome to Investor Talk — where we interview successful investors to uncover their journeys, strategies, and the lessons they've learned. Get inspired by real stories and gain valuable insights to sharpen your own investment approach.

Every interview follows the same set of sharp, insightful questions — such as “What is your investment strategy?”, “What are your highest conviction stocks?”, and “What’s the biggest investment mistake you’ve made?”

In this edition, we have the pleasure of interviewing:

Name: John Rotonti Jr @JRogrow
Age: 43
Residence/Country: United States
Invests since: I started to learn about investing in 2000. I started investing real money in 2003.

𝗜𝗻𝘁𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝗼𝗻
When I was a freshman in college I learned that my parents got into financial distress. I didn’t know what a stock was at the time, but I wanted to help so I went to the library and started to read everything I could find on investing. And I haven’t stopped learning about businesses, industries, and investing ever since.

For nearly 9 years (through March 2023) I was a Senior Analyst and the Head of Investor Training and Development at The Motley Fool @themotleyfool. I am now a portfolio manager at Islamorada Investment Management.

𝗪𝗵𝗮𝘁 𝗶𝘀 𝘆𝗼𝘂𝗿 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆?
My plan is to launch a concentrated, low trading, low-turnover, very long-term oriented equity portfolio early in the new year, hopefully in January. The plan is for the portfolio to be domestic only, but to have the flexibility to invest across industries/sectors and market caps.

The strategy will invest in what I believe to be high-quality businesses that are run by exceptional managers that think and act like owners, when I think the stocks are trading at discounted valuations. The businesses will offer strong value propositions and solve big, important problems. The businesses will be resilient and adaptable and protected by what I think are sustainable competitive advantages (emphasis on sustainable), and will have advantaged, owner-operator corporate cultures.

I will sell (or trim) when I determine that I was wrong, when the valuation balloons outside a zone of reasonableness/sanity, or when management disappoints in a really value-destructive way. I will also trim/sell to source funds for a new idea I like more (but that will be a high hurdle).

The strategy will not be fully invested at all times (with cash levels depending on the available opportunity set/valuations), and will not attempt to minimize short-term portfolio volatility (in other words the portfolio will be concentrated, and at times, invest in cyclicals or companies with negative sentiment that could remain negative for some time).

There will be a strong bias toward inactivity because the hurdle to get a new position into the portfolio will be high (think Warren Buffett’s 20 punch-card framework) and the bias will be to hold onto our stocks for a long time. I suspect that there will be long periods (months, quarters, or even a year or two) of very little to no activity in the portfolio followed by short periods of elevated activity to take advantage of sector or broad-market opportunities.

Investors should think of this as a low-activity, very long-term oriented portfolio of 20 or so stocks of competitively-advantaged businesses with long runways of per-share growth. As long as the valuations are appropriate, the rate of growth is less important than the duration of profitable growth.

Each year I will ask many of the same questions about portfolio holdings:
- Did the company’s moat(s) get wider or narrower?
- Did management think and act like owners?
- Do the company’s products and/or services remain relevant and is the company still offering a compelling value proposition?
- Do I think the company’s per-share value will be higher in five years and at roughly what rate do I think it can grow?
- Is the valuation still sane?

𝗛𝗼𝘄 𝗺𝗮𝗻𝘆 𝘀𝘁𝗼𝗰𝗸𝘀 𝗮𝗿𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝗵𝗲𝗹𝗱 𝗶𝗻 𝘆𝗼𝘂𝗿 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼?
I personally own about 50 stocks. The new strategy will own roughly 15-25 stocks.

𝗪𝗵𝗶𝗰𝗵 𝘀𝗲𝗰𝘁𝗼𝗿𝘀 𝗱𝗼 𝘆𝗼𝘂 𝗺𝗮𝗶𝗻𝗹𝘆 𝗳𝗼𝗰𝘂𝘀 𝗼𝗻?
I’m a generalist. Most of the companies that meet my quality criteria are in a broadly-defined group of industrials (everything from manufacturers to distributors to big machinery and equipment to aggregates to transportation to homebuilders, building products/supply and home services companies, and more), and then some tech, some retailers, some financial services, and some healthcare.

𝗪𝗵𝗮𝘁 𝗶𝘀 𝘆𝗼𝘂𝗿 𝘀𝘁𝗼𝗰𝗸 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗿𝗲𝘁𝘂𝗿𝗻?
The stock where I have personally earned the highest return is Nvidia $NVDA.

𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗯𝗶𝗴𝗴𝗲𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗺𝗶𝘀𝘁𝗮𝗸𝗲 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲 𝗺𝗮𝗱𝗲?
Adding to Peloton $PTON at $80.

𝗠𝘆 𝗳𝗮𝘃𝗼𝗿𝗶𝘁𝗲𝘀
Favorite book: Years ago Brinton Johns @bjohns3 (co-founder of NZS Capital) told me to read Scale by Geoffrey West @ and that book is definitely up there near the top. Other investing books are Big Money Thinks Small by Joel Tillinghast, Mastering The Market Cycle by Howard Marks, Expectations Investing by Michael Mauboussin and Alfred Rappaport, and The Little Book That Beats The Market by Joel Greenblatt. William Green @WilliamGreen72 has a special gift for writing and interviewing, and his book Richer, Wiser, Happier is superb. Morgan Housel @morganhousel is, in my opinion, one of the best financial writers of my generation, and one of his books The Psychology of Money is the book I wish I could have written…he says everything that I want to say but just crisper and more beautifully and poignantly. I think everyone should read The Psychology of Money, whether you are an investor or not. And finally, I’m fascinated by and drawn to industrial technology companies so Lessons From The Titans by the founders of Melius Research @MeliusResearchwas one of the most enjoyable and educational books finance books I’ve ever read. It’s worth noting, maybe, that I don’t read as many investing books as I used to. Most of my investing-related reading are proxy statements and 10Ks, earnings transcripts, white papers, investor letters, journals, newsletters, and other research reports.

Favorite podcast: Business Breakdowns @bizbreakdowns and Chit Chat Stocks @chitchatstocks.

Favorite quote: "The successful warrior is the average man with laser-like focus." – Bruce Lee

Favorite FinX account: In no order @sidecarcap, @JohnHuber72, @EricMarkowitz, @bogumil_NYC, @ToddWenning, @iancassel, @TMFOtter, @JimPGillies, @chitchatstocks, @NonGaap, @InvestingPod, @carlquintanilla, @LizAnnSonders, @dougclinton, @Greenbackd, @modestproposal1, @StockMarketNerd, @Brian_Stoffel_, @RickRieder, @finchat_io, @TravisHoium, @7Innovator, @Invesquotes, @DavidGFool, @TheTranscript_, @TSOH_Investing, @rsandler21969, @mjmauboussin, @drowsyinvestor, @pmje73, @GavinSBaker, @DanielSLoeb1.

I’m missing so many good ones that deserve my mention, and for that I apologize. But these are the ones that are coming to mind as I type this out. I also think the profiles and screens y’all are putting out there are top notch. 𝗪𝗵𝗲𝗿𝗲 𝗰𝗮𝗻 𝘄𝗲 𝗳𝗶𝗻𝗱 𝗺𝗼𝗿𝗲 𝗶𝗻𝗳𝗼 𝗮𝗯𝗼𝘂𝘁 𝘆𝗼𝘂? You can sign up for my emails and newsletter (which I should start sending out later this year or early next year) at https://islainvest.com/jro/. You can also find me on X @JRogrow.

Disclaimer:
The information and opinions provided in this article are for informational and educational purposes only and should not be considered as investment advice or a recommendation to buy, sell, or hold any financial product, security, or asset. The Future Investors does not provide personalized investment advice and is not a licensed financial advisor. Always do your own research before making any investment decisions and consult with a qualified financial professional before making any investment decisions. Please consult the general disclaimer for more details.