You may find it ridiculous that I am saying this, but I have some awesome news for you. Normally in an environment where the media pushes you for trading – have you noticed them saying “have a good trading day”(sic) you think all investors think of the short term. It is not so. I do not blame the media either. Investors / traders / option writers have punished CEOs and promoters for bad short term performance. Even CEOs who did not produce quick turnarounds have been punished very heavily. So is the world itself going towards short termism ? I am not saddened, but keep wondering where the investor is headed?
I was talking to a bunch of HNI investors and they were asking me questions like:
- tell me a company which has an ad budget far greater than its sales justifies
- tell me a company which is increasing capacity during a down turn (Indian Hotels is what I remembered from 2008)
- tell me a company that is catering to the world market so that they are partially insulated from an India centric recession
And they were all looking at companies which would make money in say 8-20 years time. I liked what I heard and listened to them attentively, and then as usual looked for evidence.
I really liked what I saw.
Flipkart is getting a valuation completely disconnected from its ability to generate cash. I love their skills of raising money and story telling about future profitability. Same goes for Uber and Ola. Not sure how much money www.Pepperfry.com or hola chef are making. I am happy that there are investors who are looking favorably at these companies. Not easy to raise money in a company without positive cash flow. As a banker I would hate them. As an Investor I will go real deep to see when will they make money. Not easy for sure. Then I decided to look for international evidence (it is easy to collect evidence once you know what you want to conclude: Subra). Well not sure whether it is right or wrong, but I found evidence which I could use NOW.
Amazon doubled in market price. It added about $ 140 billion to its market capitalization. This is not a small number, right? And Amazon is not making money in a hurry, is it? Doubling your market cap at this size and being a top performer in S&P is not easy, but Amazon did it. No clue what Bezos thinks of this, but Amazon is a very valuable company for sure. A company WITHOUT a positive cash flow was the second largest value adder in the SnP 500.
Amazon spends billions of dollars in research and making sure that its clients get a good product in good time and a good price.
Now come to Netflix. Same story. Indifferent to profits. Share price went from $48 to $ 110. Not bad considering that the company is now spending more than 150% of the BBC advertising budget.
So the Indian market and the US market are both rewarding the long term investor. See the yield on Siemens shares vs HUL shares. Yes people realize that as man earns more, more money will go into investment.
Think hard, play hard, be a long term investor.
No easier mantra for a long term equity investor.
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