Zombie Stocks and Hidden Value With Bob Robotti | #641

**SPEAKER_1** (0:00)
Hey babes, it's Paris Hilton. So I was checking my points balance in the Hilton Honors app the other day, and yeah, I've got about a billion, which feels excessive, even for me. Just kidding, you can never have too many Hilton Honors points. And I wanna do something iconic this summer, so I'm giving away all my Paris points. Just find somewhere you've always wanted to stay, then go to my socials or Hilton's and tell me about it. Just make sure you're a Hilton Honors member, and I might be sending you Paris points, because when you want points that make your summer even hotter, it matters where you stay.

**Bob Robotti** (0:30)
The first thing you tell the government is, do not outlaw corporations owning homes.
When a corporation got a bill to rent, builds a home, the corporation doesn't live in a home, a person lives in a home, and that's a home that would not exist. So the flow of funds is determining where the stocks are, who's popular, whatever else, and so people just aren't paying attention. So I think the market's not immediately responding, and there's a very large opportunity. I actually believe, of course, the next decade is going to belong to stock pickers.

**Meb Faber** (1:03)
Welcome to The Meb Faber Show where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better Investing starts here.

**SPEAKER_1** (1:16)
Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria's funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

**SPEAKER_4** (1:37)
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**Meb Faber** (2:02)
Welcome everybody. Today we have another awesome episode. My guest is Bob Robotti, founder and CIO of Robotti and Company Advisors, which he's been running since 1983 He also chairs the Endowment Committee at Pace University. Bob, welcome to the show.

**Bob Robotti** (2:18)
Great to be here. Thanks for scouring the universe to find the hopefully a hidden gem.

**Meb Faber** (2:24)
I figure we'll kick it off where you talk about investing in companies, and you've written about it where you say part of your framework is misunderstood fundamentals, improving economics, narratives that lag reality. Walk us through your general framework and how you think about it today in 2026

**Bob Robotti** (2:40)
Early on, I did work for Gabelli. Gabelli was one of the people who really popularized the phrase that value with the catalyst.
We've always been investors of things that have value, that don't necessarily have an identifiable catalyst. We're looking for businesses that, the catalyst is the economics of the business, economics 101, that will eventually happen over time. And there is the problem of value traps being in too early. But again, having done it for as long as we have, I think we are sensitive to that limitation and that problem and have been able to manage around and be patient and to be consistent through that whole thing and identify businesses that are really attractive and mispriced.

**Meb Faber** (3:21)
I always smile when people talk about value traps because I'm like, is that just a reason that we say is like it's just a stock pick that didn't work out? We thought it was good at the time and then it just is just a tanker. It's like a nicer way to say, we got trapped.

**Bob Robotti** (3:34)
I would think there's two kinds of value traps, right? There's something that you thought was interesting was misvalued in an opportunity and the situation didn't work out that way. It worked the other way and the business was deteriorated and was not good.
The other thing that really happens with a lot of value traps is the underlying economics of that 101 and that improvement of the business, because that's what you need. You need improving earnings before the market recognizes and can properly value the asset that you've identified you bought cheaply. That asset needs to turn into a cash flow generating stream that is identifiable that you can look at the present value of the future cash flows and realize, wow, that is much different than what I paid for that asset when it was in this latency period. I think a lot of people sell things that are value traps because the latency period hasn't manifested. I would argue that frequently when it doesn't manifest, it doesn't mean it's gone away and you were wrong, that it takes longer to happen. We love a phrase by Rudolf Dornbusch who taught at MIT, and as in economics, things take longer to happen than you think they will, but yet can happen faster than you think they could. While that period of time, and it hasn't happened, and frequently things are happening to continue to take capital out of the business, consolidate the business further. So we would argue frequently those businesses improve their earnings potential while it's not happening, and so therefore it makes it a better investment. While you're sitting there, got no performance, but the asset itself is growing in its value and its ability to generate cash flows, and therefore it's becoming a better investment, and it probably is at a price that continues to trade down, and so therefore lower price, better business.