We Study Billionaires - The Investor’s Podcast Network Episode: TIP709: The Art of Long-Term Investing with François Rochon Release Date: March 28, 2025

Hosts: Stig Brodersen, Preston Pysh, Clay Fink, William Green, Clay Finck, Kyle Grieve
Guest: François Rochon, Founder of Rochon Global Portfolio

1. Introduction

Stig Brodersen welcomes François Rochon, an esteemed investor who has successfully managed the Rochon Global Portfolio since 1993. François boasts an impressive track record, averaging a 13.6% annual return net of fees, outperforming the S&P 500’s 10.6% over the same period.

2. Annual Letter and Partnership Philosophy

[02:23] François Rochon:
“I try to treat partners like I'd like to be treated if I was in their shoes. I want them to understand what I think, why I invested in certain securities, and how the portfolio is performing.”

François emphasizes the importance of transparency and treating investors as partners, ensuring that both he and his investors share the same stakes in the portfolio. This alignment fosters trust and long-term commitment.

[03:29] François Rochon:
“Sometimes you have to fight a little bit with your clients to convince them that you're doing the right thing for them long term.”

François highlights that unlike other industries where client satisfaction might drive decisions, investing requires maintaining discipline and sometimes going against short-term market sentiments to achieve long-term goals.

3. 2024 Portfolio Performance and Lessons

[05:20] François Rochon:
“Most stock markets in the world did well in 2024, driven by very large-cap companies. If you were not invested in those securities, it was a tougher year.”

Despite a robust performance in major indices, François notes that his portfolio, focused on select high-quality companies, achieved solid returns. He underscores the significance of concentrating investments in businesses with strong fundamentals.

4. Investment Strategy: Ownership and Owner's Earnings

François adopts a strategy centered around owning parts of great businesses rather than merely trading stocks. By focusing on intrinsic value and owner’s earnings, he aligns his investments with long-term business growth.

[17:29] François Rochon:
“My goal is to optimize my capital by putting it into what I believe will do the best over many years. Stocks will eventually reflect the intrinsic value of these businesses.”

He calculates owner’s earnings by multiplying the number of shares owned by the company's earnings per share, providing a clear metric to assess and compare the intrinsic growth of his portfolio over time.

[21:43] Clay Fink:
“You illustrated intrinsic growth of the portfolio has been closely aligned with the growth in earnings per share. You run the stock prices alongside earnings.”

The alignment between portfolio performance and actual earnings reinforces François’s belief in fundamental analysis over market speculation.

5. Risk Management in Equity Investing

François outlines four key dimensions of risk management beyond mere volatility:

1. Diversification:
   [29:33] François Rochon:
   “Having 20 to 25 names is diversification enough for me.”

   He maintains a concentrated portfolio of 20-25 high-quality companies to balance the potential for outperforming the market while mitigating significant losses from any single investment.

2. Quality of the Business:
   Focuses on companies with durable competitive advantages, strong return on capital, low leverage, and conservative accounting practices.

3. Valuation:
   Emphasizes purchasing stocks with reasonable valuations to ensure a margin of safety. François avoids overpaying, adhering to principles akin to Ben Graham’s value investing.

4. Investor Behavior:
   Stresses the importance of controlling one’s behavior, avoiding market timing, and minimizing excessive trading to reduce portfolio risk.

[29:51] François Rochon:
“Increased trading and trying to predict the market increase the portfolio's risk and can reduce returns over time.”

6. Highlighted Portfolio Holdings

Booking Holdings

[43:56] François Rochon:
“Booking has done an incredible job of adapting to threats like Airbnb by transitioning from a third-party agent to a merchant model, enhancing their moat and direct client relationships.”

François admires Booking Holdings for its strategic adaptability, strong cash generation, and disciplined capital allocation, including consistent share buybacks. Despite a higher PE ratio, he views the company’s sustainable growth prospects as justifying the valuation.

Brown and Brown

[50:50] François Rochon:
“Brown and Brown has grown earnings at 15% annually by consolidating the insurance brokerage industry, making it a stable and impressive business.”

François re-entered Brown and Brown after observing strong management performance and robust earnings growth. He appreciates the company’s low-risk profile compared to insurance underwriters and its effective market consolidation strategy.

7. Thoughts on Alphabet and the Impact of AI

François discusses Alphabet (Google) as a cornerstone investment, lauding its dominant market position and effective management. He acknowledges the potential challenges posed by AI but maintains confidence in Alphabet’s ability to navigate and innovate within the evolving technological landscape.

[56:32] Clay Fink:
“Five, ten years from now, who knows what Google search is going to look like?”

François remains optimistic, citing Alphabet’s historical adaptability and strategic acquisitions as indicators of continued success despite industry disruptions.

8. Use of AI Tools in Research

[60:55] François Rochon:
“We use tools like ChatGPT to gather information more efficiently, but decision-making remains a human-driven process.”

While François leverages AI to accelerate research and information gathering, he firmly believes that investment decisions should be based on human intelligence, judgment, and deep analysis of business fundamentals.

9. Conclusion and Where to Learn More

François Rochon encapsulates his investment philosophy by reiterating the importance of owning great companies for the long term, allowing intrinsic value to be recognized by the market over time.

[39:33] François Rochon:
“You want to own great companies for many, many years, and hope that in the long term, the market will reflect the intrinsic value of the business.”

Listeners interested in François’s strategies and insights can explore more through his website at riverncapital.com (as mentioned, though the transcript states "nguyenicapital.com", which may be a transcription error).

Notable Quotes:

• [03:29] François Rochon:
  “I promise that we'll all be in the same securities. If I do well, they'll do well.”

• [29:33] François Rochon:
  “Increased trading and trying to predict the market increase the portfolio's risk and can reduce returns over time.”

• [39:33] François Rochon:
  “You want to own great companies for many, many years, and hope that in the long term, the market will reflect the intrinsic value of the business.”

Key Takeaways:

• Long-Term Investment Focus: François advocates for a disciplined, long-term approach, emphasizing ownership of high-quality businesses over market timing.
• Intrinsic Value Alignment: By closely tracking owner's earnings, François ensures his portfolio's performance aligns with the underlying business growth.
• Risk Management Beyond Volatility: Diversification, business quality, reasonable valuation, and disciplined investor behavior are central to managing portfolio risk.
• Strategic Holdings: Investments in companies like Booking Holdings and Brown and Brown exemplify François’s criteria for durable competitive advantages and robust growth potential.
• Adaptability to Technology: While leveraging AI for research, François maintains that investment decisions should be grounded in human analysis and understanding.

This comprehensive conversation with François Rochon provides invaluable insights into the principles of long-term investing, risk management, and the importance of aligning investor and manager interests. His disciplined approach serves as a guiding framework for investors aiming to build sustainable and high-performing portfolios.