Idea Brunch with Jacob Rowe of Rogue Funds

Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Jacob Rowe!

Jacob is currently the chief investment officer of Rogue Funds, a Raleigh, North Carolina-based fund launched in May 2023. Rogue focuses on deep fundamental research, manages a concentrated portfolio, and generally invests in distressed opportunities and special situations. Since launch, the fund is up ~75%, meaningfully outperforming index benchmarks. Before starting Rogue, Jacob studied engineering and economics at East Carolina University, graduating in 2021.

Jacob, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Rogue Funds?

Hey Edwin, thanks for inviting me for the interview. I have been involved in investing since I was about 13 which is when I first started reading about it very heavily (the first investing book I ever read was “You Can Be a Stock Market Genius”) and I bought my first stock which was Lockheed Martin when I was 14 on the newly created Robinhood app. I have wanted to start a hedge fund since I was about 16 and I figured there were two ways to go about it. Either build up a lot of time in the industry and use connections to build a fund, or to just go for it and burn cash while the Fund operated unprofitably until it scaled a bit/built up a track record. To capitalize on this plan, I knew I would need a job that would provide me with start-up capital and plenty of time to continue my investing venture.

I went to college to get a degree in mechanical engineering so that I could get a high-paying job to help get the capital needed for the fund. Second semester of sophomore year I tacked on a quantitative economics degree after taking microeconomics since I loved the class so much. I was able to gain a full-ride scholarship my senior year for economics and helped use that money to begin investing along with my engineering income post-grad. I built up a short track record during 2021/2022 and began writing online in 2021 which helped me attract some of my current investors.

I started Rogue Funds in May of last year (2023) and obviously the first year and a quarter has obviously gone extremely well, and I am excited to see where future years go.

Can you tell us a little about your research and investment process?

I am 90% a fundamentally long-only investor. I will look at any company I can as long as I can understand the industry, what the company does, and where the market is going. I do invest globally but still only stick to companies I understand. 99% of companies that I look at I toss away within 5-10 minutes whether it’s due to overvaluation, poor management, or just poor future growth prospects. I don’t have a super specific process other than going through companies one at a time. As I run a concentrated portfolio, I try to ensure all my investments are in various industries to reduce portfolio risk while still maintaining strong concentration in great investments.

Since my main goal has been to identify multi-bagger opportunities this has led to a focus on small-cap companies. I will invest across the market cap spectrum, but I tend to focus on smaller companies that have a lot of room to grow as I believe that is where the most opportunity is.

When going through fundamental analysis I read through the last three years of 10-Ks, and I try to look at as many investment presentations as I can. I also tend to read the last 3 years of transcripts as there tends to be a lot more insight from management in transcripts than what you can find in MD&A. From there I look at all of the financial information I can, going about 10 years back (if it’s even that old) and paint a picture of the company. I attempt to hold most investments for well over a year, preferably 3-5 years, but last year had a lot of turnover due to extremely rapid success across the portfolio.

What’s contributed most to your early success with Rogue?

In our first year, we had a fantastic year. Obviously, luck played a huge factor as Sezzle (NASDAQ: SEZL) essentially 7 bagged in less than 6 months along with success across basically all but one of our investments. A huge reason for that is that our investors have had strong stomachs through times of volatility and that allowed me to average down some positions in times of hysteria. My investors are a huge part of why I will have continued success as they choose a long-term-oriented view.

We had winners in Consolidated Communications, GEO Group, Rimini Street, Sezzle, and QRTEA bonds that contributed very heavily to our first year of outperformance that ended a few months ago. This year has been a little more volatile as I essentially reallocated the whole portfolio due to the high turnover from the success of last year. I think continuously focusing on multibagger opportunities in a concentrated portfolio is the best way to invest and it’s a huge reason for my past outperformance. All it takes is one or two great investments that can really push the portfolio forward, so I try to look for those opportunities that have 5x+ potential with little downside risk.

In July, you published a bull thesis on Root Insurance (NASDAQ: ROOT), a tech-enabled car insurance company that I previously criticized in December 2020. Why is Root a compelling opportunity today?

Root is much different than the company you wrote about in December 2020. Their combined ratio has plummeted, and their loss ratio has improved significantly. A huge part of your thesis was the fact that Root had horrible reviews which if someone looks at 2021, you will see the investigations all over the internet. The good thing is that most of that bad press stopped about 2 years ago, and I believe that has been partly due to them gathering a ton of new driving data. Root has way more data than it did 3 years ago and continues to show some of the best loss ratios in the industry and are very close to profitability. Although their current growth rate isn’t sustainable (mainly due to market dynamics) they are still showing an ability to grow in a much more competitive environment than 2023. Their marketing strategy has shifted towards more partnership growth channels, and it will be interesting to see if they are able to keep up their current ability to scale while keeping expenses low. Their ability to grow will continue to be lumpy as they capitalize when other competitors are out of the market (and the market hates lumpy growth) and that’ll lead to some large swings in the stock price.

What is another interesting idea on your radar now?

The Fund’s newest (and now largest) position is: