Chit Chat Stocks - Presenting: The JRo Show With John Rotonti

Episode Date: October 5, 2023

John Rotonti is a seasoned investor and contributor known for his insightful analysis to investors around the world. He has just launched a podcast called "The JRo Show" that you can find wherever you get your podcasts. Enjoy the show! ***************************** Chit Chat Money is presented by Interactive Brokers. Switch the best brokerage in investing today: ⁠ibkr.com/info⁠ ****************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of John's work? Find his Twitter here: https://x.com/JRogrow?s=20 Listen to the JRo Show here or wherever you get your podcasts: https://podcasters.spotify.com/pod/show/john-rotonti Contact us: [e-mail] ***************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This show is going to be a little unique. It's not the typical stock deep dive we have. This is more of a get to know you with John Rotonti. You're going to see here in a second that John is launching an exciting project and we wanted listeners to get a better sense of who he was as an investor. And he's really an investor that Brett and I have learned a ton from. We admire, we look up to him, and he goes through his entire investment philosophy, research process, how he personally invests. And I think there's a lot of lessons to take away if you are working in the world of finance, want to work in the world of finance, or just trying to refine your portfolio. I think there's a lot to get out of this interview. So like I said,

not a typical interview, but I think it should be a lot of fun. Brett, am I forgetting anything? Yes, we should say the name of the project because it is a podcast and it is called the J-R-O Show with no hyphen. J-R-O, then show. The link will be in the show notes, but search for it at your podcast player of choice. The link in the show notes will probably either be directly to one of the popular ones or a link to all the other links to wherever you listen. So check it out. It is J. Rowe Show. We'll describe what it is during the interview. All right.

Without further ado, here's our discussion with John Rotonti. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode.

Okay. Welcome in. I am Ryan Henderson. I'm joined by Rhett Schaefer and our friend, John Rotonti. If you're listening to this on our podcast, this is going to be a bit unique because it's not necessarily stock specific, but John's got a big announcement and we're also going to go through kind of his investing style. We know, John, people love to hear about your investing philosophy and everything like that. So we'll get through some of that. But before getting into anything, I guess, investing strategy-wise, why don't we talk about who you are, your background, give listeners some context around how you got into the world of investing. Thanks for having me on the show, y'all. Always love to be on.

So I've shared this story before, excuse me, but I grew up spoiled and privileged and what I thought was quite wealthy. I was recently on Bogomil's amazing Talking Billions podcast. As of the date of this recording, that has not been released yet, but it will be released soon. And, you know, I discussed the mansions and the vacation homes and the yearly trips to Aspen and then not quite yearly, but frequent trips to Hawaii and Manhattan and Europe, always traveling first class, staying at some of the nicest hotels. So rather than repeat that part of the story, maybe I'll share some of the athletic coaches that I got to work with while I was growing up as another way to frame my early childhood through, let's say high school.

So growing up, I trained with Tom Shaw. Tom Shaw is a world-famous speed coach who coached Deion Sanders and other superstar athletes. During the summers of high school, I traveled to Torrance, California every summer of high school to train jujitsu with Hoist Gracie, who was the first UFC champion and a UFC Hall of Famer. And then I had a personal trainer from the time I was in seventh grade to the time I graduated high school. But then I went to college and that whole world of privilege and access blew up. So I started learning about investing as a freshman in college because that's when I found out that my parents had severely extended themselves financially and gone broke.

So at this point, freshman in college, I did not know the difference between a stock and a bond. I did not know how public markets work. I think I knew that the stock market existed, but I couldn't tell you what it was if my life depended on it. So I learned that my parents were broke and I felt really bad because they had provided me with this amazing life where I experienced so much. And they were also paying for my college tuition, at least that was the plan. So I wanted to do something to help. So I went to the library and I came across Peter Lynch's one up on Wall Street. I read the book in a day or two and the rest is history. I was 18 years old. I've pretty much been reading about and thinking about business and investing

every day since then. I'm 42 years old today. I think the important takeaway is not necessarily my path into the world of investing, but how my life circumstance put value investing into my DNA, so to speak. I saw that my parents went bankrupt because they had a growth at any cost mentality. They quote unquote, paid up for luxuries of life without spending enough time thinking about what things were actually worth and what value those things could bring and what value those things could create over time. And then they paid for them with leverage. And this game can go on for a really long time, especially if you're good at gaming it. But eventually, they just went too far out on that branch. They had gone too far

out on the risk spectrum. The life they were living was so far detached from the fundamentals of the cash flow they were bringing in. The life they were living was so far detached from the reality that they left themselves zero margin of safety and they kept walking further and further out on that risk spectrum or out on that branch. And that branch eventually broke and it all came crashing down very hard and very fast. And so now I insist on a margin of safety and finding real value in all that I do. Okay. And we are going to talk about this project that you're about to launch. And I'm sure a lot of the people listening right now are familiar with who you are, familiar with a little more of your background, but just real quick, how would you describe yourself as

an investor? Who are you in the investing world, I guess? How would you categorize yourself? I would describe myself if forced to. I don't necessarily love these categorizations, but I know they're helpful. I would describe myself as a quality, intrinsic value investor. I mentioned quality first because I only want to spend my time on high quality, growing businesses. And then I try to only buy them at value prices. So for every core position, I try at least I try, to estimate intrinsic value per share within a reasonable range. So quality and intrinsic value investing are the heart and soul of my investing philosophy. I insist on a margin of safety. I don't want to pay fair price for anything. And if I could

emphasize one thing. It's that I'm not talking about QGARP or quality growth at a reasonable price. I'm really talking about quality growth at an unreasonably cheap price. They charge USD margin loan rates from 5.83% to 6.83%, rated the lowest among margin fees. The ability to trade stocks, bonds, options, futures, commodities, and more with high interest rates paid on instantly available cash balances, plus the ability to lend your eligible stock shares to earn passive income all on one single unified platform. That is why we at Chit Chat Money use IBKR and wouldn't use anything else. Restrictions apply.

For more information, visit IBKR.com slash info member SIPC. Open an account with IBKR today. That's a great description. It sounds like, and it's similar to ours. I mean, we've been inspired by you as well. And, you know, other investors, we want that margin of safety. It's, but also we don't want to be buying a company that we think has no growth prospects, Which, you know, sometimes that can be a hard thing to find. You have to have, I think, very high standards when looking at your investments. And I think, you know, us included, there are a lot of people over the last five years that have learned, I guess, the lesson that price matters.

So I think there will be a lot of people that speaking of which, as we try to transition to the project launch here, what your show is going to be about. So the show is the J-Row show. It is a podcast. It is launching this summer. I'm going to say this summer because when it comes out, we don't know the exact date. But why are you launching the show? And what is the goal of the podcast? You know, I guess the big question is, why should people listen? Who would want to listen to this thing? Yeah, thanks, Brett. Yeah, I'm comfortable saying it will launch this summer. It's going to be called the J-Row Show. As far as why I'm launching the J-Row Show, I could probably spin this positively or negatively. The negative spin is that I've been unable to secure the dream job that I want at two or three dream investing firms that I've always wanted to work at in order to challenge myself and learn from some of the best value investors out there today. The positive spin is that for several years, I have dearly wanted my own podcast. I'm only very good at a few things. And I think one of those things is networking with the best in the world, developing close professional relationships with them, and even becoming friends with them. And then getting them

to do interviews with me and me asking them the right questions so that they can tell their story and share their experience and their lessons and their wisdom with the world. I'm really good. Once again, I think I'm really good at asking the right questions. So that's That's what the podcast is going to be. It's going to be mainly an interview show where I interview the best in the world in an effort to explore mastery, sustained performance, and longevity. I'm going to keep those ideas broad for right now and vague, but we're going to explore mastery, sustained performance, and longevity.

And because my network is mainly investors right now, much of the podcast, at least in the early days, will be focused on studying mastery, sustained performance, and longevity in the investing world. But hopefully over time, I'm able to expand and interview masters in any field, including sports, entertainment, academia, arts, whatever I can get my hands on. My vision is to think of this like a balanced investing portfolio, maybe not straight up 60-40, but maybe 70-30 or 80-20, where 70% to 80% of interviews will be business and investing focused, and the rest will be some field outside of business and investing.

All right. And one more teaser on the show. I know some people will be listening to this on our feed, the Chit Chat Money one, but also people will be listening to it on your feed as well uh you know who are some potential guests that it might be showing up um over the next few months or maybe just give one or two i don't know if you have any in mind i know obviously you haven't confirmed 100 the recordings yet but what who are some that you think are going to be coming on the show what type of guests and what are you guys looking forward to talking about? So I'm going to initially pull from

the two or three dozen investors, practitioners, but also academics that focus on finance and investing that I've interviewed in the past, right? And so when I was at The Motley Fool for nine years. I published two dozen or more interviews on our free website, on the Motley Fool's free website, where I interviewed some of what I believe to be the leading practitioners of value investing in the world. These people are portfolio managers. They are chief investing officers. They're directors of research. And they've been at it for 10, 20, 30, 40 years in some cases. And then there, of course, there are exceptional academics in that field as well that put out research that all these practitioners use to improve

their processes. And so those are going to be the people that I focus on early on. Although the interviews are going to be different than I've published in the past because a lot of it is going to get to the heart of why they were so successful in their career, what it took, the amount of time, the processes and frameworks and guardrails they put in place, the people they surrounded themselves with, the repetition and the diligence that they infused into their life and into their career. That's what I want to get at, what it takes to be great and to achieve mastery on the levels that they've achieved. Okay. I think that's a pretty convincing sales pitch. And I'll say the name one more time and

repeat what Brett said here. The show is set to come out some point this summer, we believe probably from this recording, which this will probably be published maybe a ways after it's recorded uh maybe a couple of weeks so i think by the time this episode is published if you are listening to this go ahead and whatever your podcast player is look up the j-ro show and hopefully you should be able to find it by that point and we should spell it actually i should say are we doing a hyphen john or do you wanna i think i'm gonna go no hyphen so just j-r-o okay yeah the jay rowe show i know the spot the the podcast players uh they may not have the the sophisticated search out algorithm so we want to get that spelling correctly

yeah yeah the jay rowe show it's got a nice rhyme right a nice ring to it i think i i agree i agree all right let's talk a little more about you john um we we briefly alluded to your investing philosophy but i guess i want to talk more about the research process because i think you have maybe more so than other investors, like a more regimented process, I think almost like a training system, if you will. Whereas I know Brett and I are generally, we kind of read what we can and it's kind of loosely followed structure. But how do you go about researching potential investments? What's that process really look like for you? Yeah. I'm really glad you're asking this question because process is something I'm

very passionate about. Maybe it's the topic I'm most passionate about in the world because I do think superior process can lead to superior outcomes over time. And largely, the J-Rose show is going to be a study of processes that people have developed over time to achieve this mastery. I think a superior process is like a superpower. And one of the things I think I've become good at over the years is putting processes and frameworks and guardrails in place to increase the odds of long-term performance. So you asked me about my investing process. I'll describe that. But we can also talk about processes that I've put in place in other aspects of my life as well. but my typical process to analyze an opportunity in the stock market looks something like this.

So the first part of process is idea generation. I would say that I typically get ideas in a few main ways. First is that I maintain a watch list of what I believe to be some of the highest quality growing businesses in the world. And then I patiently wait for their stock prices to get crushed. It's that easy. It just takes patience. So that's the first- Easier said than done. Easier said than done. The patience part, it can be difficult sometimes. Well, yeah, there's two parts to that, right? So one is understanding the business well enough and researching it well enough ahead of time to believe that it is a high quality growing business, to put it on the watch list. That

is step one. And then you're right. The second step is just waiting for the stock price to get crushed, which takes patience. Patience was one of the two words that I put on the cover of the book that I published in 2013. The other was conviction. And so yeah, I think patience is also a superpower, just like process. So that's the first source of ideas, the stock of high quality growing businesses that get crushed. The second source is from reading relentlessly and prolifically everything from newspaper articles like Wall Street Journal, Barron's, Bloomberg, to industry journals, for example, Gas World, all about industrial gases, or the stuff put out by the Harvard Joint Center for Housing Studies,

basically all about home building, home improvement, all that type of stuff. So newspaper articles, industry journals, institutional research from big investment banks and buy-side firms. So I read anything I can get my hands on that I think is good. And while reading it, I'm trying to identify and follow big themes. I'm trying to identify where we are in the current cycle, and I'm trying to connect dots. So that's the second source of ideas. The next source of ideas are ideas that are shared with me through my network of investors that I admire deeply. That's three. And then the fourth source of ideas are investor letters and 13Fs.

Just a quick note on the 13Fs. So I had a friend that texted me a few weeks ago and told me that so-and-so investor bought stock in Charles Schwab. So my friend knows that I had been buying stock in Charles Schwab around $50 per share. And so he reached out to me and he said, so-and-so investor also bought stock in Charles Schwab. So I took a look. It turns out this investor took a 0.2% position in Charles Schwab, according to a website that I use to find new positions that investors take. Well, wisdom?

It's Datorama, but I use WellWisdom as well. Yeah. So that really, that 0.2% position, it's non-meaningful for me in how I'm looking for ideas. That doesn't really alert my radar. It doesn't sound off an alert on my radar. When I'm looking at 13S, I'm really looking at new meaningful buys or sells and then big movements. either buying or selling in their top 10 positions, let's say, especially if it's a concentrated firm. If I'm being honest, I'm probably focusing on their top five positions if it's a really

concentrated firm, but I digress. So that's how I source ideas. Once I've identified a new business that I want to study, the first thing I do is take a quick glance at the balance sheet. This is a cursory review, maybe 15, 20, 30 minutes. It depends on the business. I just really want to make sure that the balance sheet is strong enough to survive most scenarios. That's my first filter. If I don't think the balance sheet is strong enough, I just move on because I think the balance sheet is the foundation of a great high quality growing business. I don't think you can build a long-term compounder on a weak foundation, right? So next, I read the big filings to include the annual report and the 10-K, the proxy, and the most recent 10-Q. After that, in most cases, I read at least eight earnings transcripts. So I go back two years with the earnings transcripts.

If the business went through a big leadership change or a business model shift or an acquisition or a divestiture, something big further out than two years, maybe happened three years ago, four years ago, then I'll go back as far as I need to go. If the CEO writes letters, I'll read those letters next. Oh, this is big as part of my process. The whole time I'm writing down questions that I have about the business. from day one of research, I'm writing down questions that I have. And as I go along with this process, I'm answering a lot of those questions on my own as I learn more about the business and the industry and the management team. Okay. So I'm answering questions that I have as I

go. Back to the process. One question, John. And this is more just my curiosity. I don't think it's that important. But when you go back and read the transcripts, do you start, let's say you're going two years back, do you start with the old ones and then read as if you were a shareholder during that time? Or do you start with the most recent and just kind of go back as far as you think you need? It's a good question. What I normally do is start with the most recent full year, so end of year, Q4, whatever, to get an idea of where they currently are, maybe what goals they have currently set. So I'll read that one, and then I will go all the way back two years and go from there and read them in order because I want to see really

how the business is progressing and whether they are sticking to the targets they have set for themselves and for the business. Good question. So then I just scan through the press releases to make sure I haven't missed any big news stories or announcements. I'm a numbers guy. So by this point, I'm probably ready to do financial statement analysis. What I do for that is I have what I call a scorecard that I make for every company. It's simply an Excel spreadsheet with about 20 metrics that I track for most businesses. And on that spreadsheet, I go back usually 10 years. I look for any big breaks in the trend line. And I want to make sure that I understand all the numbers, how the business economics work, and any breaks in those

trend lines. After I feel like I've done a good accounting and financial statement analysis, Then I study the industry more and the main competition. As I said, the whole time I'm answering questions that I've written down. And the whole time I'm running through frameworks that I have in my head to analyze management, analyze competitive advantage, analyze barriers to entry, analyze risk, etc. um i then may do you know scuttlebutt research like phil fisher called it so i may try to reach out to industry experts industry insiders to get their thoughts so for example if i'm studying a home builder a public home builder i may try to reach out to a few different private home builders across the country they may not be as big as those public home builders but they've been building homes for 10 or 20 years and they're building 10 or 20, 30 homes per year and they're private. So they're happy to share all of this information with you.

They don't have a filter. They can say whatever they want. They can tell you what they really believe is happening in their industry right now. Another example, if I'm studying a medical device company, maybe I'll try to reach out to doctors or surgeons using that device. Um, then I try to speak with manage the management team of the company in most cases, um, and the management teams of competitors as well to try to get the remaining questions that I have not been able to answer on my own answered. Right. And then I'm probably ready to do a valuation analysis.

And finally, I may try to discuss my idea with investors that I really admire. that I know are not going to bullshit me. So I think maybe I missed a few steps, but that's a pretty good overview of my typical research process when I'm analyzing a business and trying to pick stocks. and more all right uh ryan did you have a follow-up on that i know you had the next one here

but no go ahead okay i was gonna say and that's this is kind of probably a quick one that's just a lead like all right after you do that i think a lot of individual investors that listen to our show i'm guessing yours as well will basically you go through one of those biases which is uh forget the name but it's you kind of do all this research it's hours and hours and hours could be over you know a long period of time you're kind of off and on with the company you know endowment yeah it's probably endowment i think it's definitely where you're like yeah i've researched this so much i basically have to buy it at this point is do you have any tips for basically helping out with that like hey look nine out of ten of these are just going to go

on the watch list at first, like people can get frustrated with that. I don't know any tips with that and how do you work through that? Yeah. So this is actually, I don't know if you'll remember the first time I was on your podcast, you asked me for like advice I would give to newer investors. And that's the mistake that I see rookie investors make the most, right? They research their first business. So I give a lot of guest lectures at universities and business schools and I mentor students. And so they do their first complete, what they think is complete due diligence on a business. And then they build their first DCF model and they put in numbers to make that DCF model work. They put in numbers that make it seem as though the fair value based

on the fundamentals is very close to where it's trading in the market, maybe a little undervalued so it's a buy because they want it to work so badly. They want the two or three months or the semester they spent researching their first business to be this big winner. It's exciting. We've all been there. And the other reason that it's a buy in their minds almost automatically is because they have nothing to compare it against. They're not thinking in terms of opportunity costs. They haven't studied 100 businesses. They haven't suffered through blowups. They haven't learned mistakes the hard way. So yeah, maybe, and Brett, you talked about this earlier in today's show, but you talked about selectivity. Maybe the investing concept

that I think about the most, I think about all the time, y'all, all the time is Buffett's 20 punch card. And I know it's like so cliched and everyone talks about it, but no one follows it. But I think about the 20 punch card all of the time. It drives almost my entire decision-making process. I am much more proud of myself when I say no to an idea than when I find an idea. I've trained myself to become perfectly comfortable only buying two or three times a year in an average year. And I've tweeted about this. I've talked about it on the morning show at The Motley Fool. I only log into my account two or three times, my brokerage account, on average two or three times a year. And one of those times is

to get my tax documents. I've just trained myself to love saying no. Stocks come to me to die. Stock ideas come to me to die. I'm just not excited to buy what everyone else is excited by. In fact, that makes me very uncomfortable. And so it's just learning how to say no, building filters. And by the way, I do this through the processes that I have, through my checklist, through my frameworks. There's a great idea that I love when it comes to the 20 stock card. The 20 punch card is a great visual. You have a punch card, you have a whole punch, and you can only buy 20 new ideas in your life. Don't waste it. It forces you to think about opportunity costs. But another great mental framework for that

is Matthew McLennan, the co-head of the Global Value Fund at First Eagle. And by the way, I got this from reading Richer, Wiser, Happier by William Green. But he thinks about chiseling away at a sculpture, and he chisels away all of the stuff that he doesn't want to invest in. Chisels it away, chisels it away, chisels it. He's constantly chiseling away. That's another way to think about it. Filter out all of the bullshit from the beginning. And that leaves you with very few truly good ideas. So let's say you're researching a business and you're kind of in the middle, let's say, of your research process. You've read an annual report, you're thinking about reading some conference calls and you find

something you don't like, or you find something that maybe disqualifies it. Do you stop your research process there and say, let's move on to the next idea? Or do you say, maybe there's a price that I would own this kind of thing? So it's both. If the company is high quality and growing, but there are some things that, you know, maybe it scores a seven out of 10 on my checklist as opposed to a nine out of 10, right? Yeah. I may stop my research two weeks in, but I've got that research saved away and stored away in case that price does come down enough to justify me buying a seven out of 10. Or the business improves. Or the business improves. Exactly right. Yeah. Businesses change over time. Yeah.

Yeah. And so I have completed different amounts of research based on different businesses. I don't bring all of my research to completion right then and there, but I do store it away, file it away, library it away. And that way, when the stock does get crushed, I can revisit it and I don't have to start from a standing start zero. All right. Now, this is going to be a fun one. This is always a fun question when you ever get to ask someone because I think a lot of investors have to be very opaque about this and there's all the compliance stuff that people worry about. But how do you personally invest from a portfolio allocation perspective or something along that lines? And what are your thoughts on stuff that's very popular among a lot of investors, shorting and hedging? Great question. So when it comes to portfolio management and position sizing, I think I do maybe two things that are somewhat unique. one is 100% of my 401k is indexed, 100%. I think most people should index a lot of their money

because investment's hard. Beating the market over a long, sustained period of time is hard as well. And most people don't do it for a living. So they're not putting in the time, the commitment, the repetition, the diligence, the deliberate practice that you need to survive over a long period of time in the market because markets can be brutal. That's one unique thing I think I do is I index all of my 401k. The second thing I think is maybe a bit unique is in the way that I size my portfolio in that my largest positions are not necessarily the ones that I think are trading at the largest discount to value. But rather, my largest positions are the ones that I think are the safest and least risky and the most likely to survive

and become somewhat bigger and somewhat better if the stock market closed for the next five years. you know i i think they're i think they're extremely resilient i think they are anti-fragile to a degree and i think they have some degree of growth doesn't have to be fast growth but just some degree of chugging along getting a little better and a little bigger year in and year out that those are my largest positions what the ones that i believe are least risky because all i want to do is survive so my largest positions are berkshire hathaway But it's not trading at the most attractive price-to-value ratio, in my opinion. My other largest positions are Home Depot, Apple, Microsoft, Visa, Alphabet, Accenture, Domino's, and a basket of alternative asset managers that I almost consider one position when you add the basket up.

many of these top 10 positions for me i consider to be fully and fairly valued some of these i will trim but the point is that i'm not necessarily sizing by discount to my estimate of intrinsic value at least not at the top of my portfolio i think most value managers size by discount i don't do that um as far as shorting and hedging so it's something i think about a lot not as much as i think about the 20 punch card and and and how to say no but it's something i think about a lot um because just like everyone i get like sucked into puzzles and like trying to figure out complicated things and i have to like almost pull myself away from those puzzles at times um I don't think there's anything inherently wrong with shorting. And quite the contrary, I think shorts flush out fakes and frauds, and they help with price discovery that is required for functioning markets.

Investors that are skilled and experienced at shorting do extensive, thoughtful, almost painstaking work, sometimes over years, if not decades. um so the research in a lot of these cases is is excellent um let me also say that if i was managing a hedge fund i would in fact be hedged in some way whether choosing options whether choosing shorts whatever i think is most appropriate because i'm being paid to actually be hedged and I'm being measured on an absolute return basis. But I'm not being paid to manage a hedge fund right now. And so I've never personally shorted a stock. I can't imagine, even if I was running a hedge fund and I was paid to be hedged, I can't imagine I would ever be net short. It would have to be an extreme outlier situation for me to be net short for two reasons.

One, the S&P 500 has historically gone up on average three out of every four years. So on average, the market goes up 75% of the time. And that's a stat. Everyone knows JP Morgan puts it out, I don't know, monthly or every couple of weeks, they put out that chart going back 42 years. right? And it shows the market on average goes up three out of every four years historically. And the second reason is I'm very risk averse. I just told you how I position my portfolio is the least risky positions are my largest positions. And so from a risk reward, I just like being long much more than I like being short. As probably all your listeners know, when you're long a stock, the most you can lose is what you put in, the most you can lose is 100%.

And then upside is asymmetric. Hypothetically, it's unlimited. Hypothetically. But with shorts, the ratio is pretty much reversed. And then you also get risk. The risk is that you get margin called and no one wants to be margin called. And then finally, I'll just say that in today's environment, if we're talking hedging, cash seems like a very good hedge to me because investors can earn 5% or more on their short-term cash. Okay. Last question, maybe second to last question. Who are some of the investors you most look up to? I admire investors that have survived and thrived over decades, over decades. And so, obviously, Warren Buffett

and Charlie Munger are on that list I don't want to throw out too many names because then I'm going to leave out one that I absolutely love and that deserves for me to name them but I admire the heck out of

Joel Greenblatt, I admire the heck out of Peter Lynch Nick Sleep, Monish Pabrai Bill Nygren. He's been doing it for over 40 years. There are a ton of investors that I admire. I would say Steve Romick. I do have to mention him. God, is he good. Steve Romick over at FPA, he runs a balance fund and his returns over decades are in line with the S&P 500.

even though he's balanced, he's in bonds, he's in whatever, gold, cash. But the S&P is fully invested, no cash and fully long. So to be able to meet the market is pretty incredible. But yeah, the ones I admire are ones that are experienced to the bone. They've survived and they've thrived over decades and they have an open mind. They're a learning machine. They're humble. They learn from their mistakes. Those are the investors I admire. Okay. Last question then, since it looks like we still have time and I forgot to send this one over beforehand, but I wanted to ask it because you reminded us that we asked this the first time I interviewed you. And so I think it's along the same lines, but what advice would you give to

someone who wants to work in the world of investing? I heard an interview with Bill Nygren recently. He was interviewed by Tano Santos and Michael Mobison over at Columbia Business School. And he said that one of the things that surprises him the most is people want to get in the investing world and they don't understand accounting. I think he equated that to saying someone wants to go live in a foreign country and work in a foreign country, but they don't want to learn the language of that foreign country. I think if you want to get into the investing world, you should spend all of your time, all of your time studying businesses and industries and securities across the capital

stack, across the capital structure. I think you need to know what a bond is, how fixed income works. I think you need to know what a stock is, what you're buying when you buy a stock. I think you need to understand a variety of businesses across a variety of industries. I think you have to have a deep understanding of accounting, financial statement analysis, valuation, competitive advantage analysis, barriers to entry analysis, analyzing management teams, understanding base rates, the risk analysis, the list goes on and on and on. And I think you need to build selectivity into your framework. I mentioned this on another podcast recently, but everyone on Twitter talks about Nick Sleep and Charlie Munger, and they quote Nick Sleep and Charlie Munger's letters and their wisdom. And I love, I admire the heck out of those two men. They are geniuses when it comes to investing

and probably life, honestly. They figured it out. No one invests like them. Nick Sleep owns four stocks. Charlie Munger owns three, I think. No one invests like them. They say no to 95% to 99% of the things that come across their desk. They say no to almost everything. Whereas people getting into the world of investing today, I'm overgeneralizing, but they say yes to everything. They hear a cool idea on TV, they buy a little stock. They hear a cool idea on Twitter, they buy a little stock, and they end up with 50 or 100 positions that they don't really understand. Now, the advantage of that is you're probably diversified, and so you're probably protecting yourself in some way. But if you want to be the best, study the best, they don't do

things like the average investor. They're incredibly idiosyncratic, and they're investing incredibly idiosyncratic opportunities. So my answer is deliberate, almost pain staking work, put in the reps, put in the reps. Okay. I think that's all the questions we have for listeners that want to hear more of John and hear more of his interviews. Go ahead, check out the J-Row Show, hit follow, subscribe, whatever it is to keep track of it. So you can see the new interviews when they come out, but that is going to do it here. I think we'll throw a disclosure on this one. So for all listeners, anything we say or discuss here on the show is not formal advice or recommendation. We are however, general partners, Brett and I are

general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening and we will see you next time. We'll be right back.