In his latest article titled – Sources of Enduring Business Success, John Huber discusses the simplest way to maximize investment performance. Here’s an excerpt from the article:
Last summer, investors sold Amazon after its Q2 earnings report because the next few quarters would face tough comps from the gangbuster 2020; but Amazon’s value in 2032 has little to do with the comps it faces in 2022. It has a lot to do with the durability of its network, the economies of scale, the distribution advantages, the culture of operational excellence; none of that will likely drive the stock this quarter, but it’s what matters most to the stock over the next decade.
A mismatch of time horizons lead some investors to more heavily weight the short-term and deemphasize these sources of “enduring business success”.
Investors who hope to buy a stock that will rise this year are much less apt to fully value these types of sustainable long-term competitive advantages. And fortunately for investors with 5-10 year time horizons, this creates a lot of opportunity. I’ve always felt that durable growth (not necessarily fast growth, but long-lasting durable growth) often gets undervalued by the market. I think Nick’s [Sleep] point about time horizon goes a long way to explaining why.
Summary – Focus on the Advantages that will Matter in a Decade
The key variable for these companies was not what the comparable sales will look like next quarter or what the business might earn next year. The key variable was the durability of the cost advantage. This advantage didn’t change much from year to year. In fact it likely increased over time, which is a unique business model where growth actually perpetuates more growth.
You can read the entire article here:
John Huber – Sources of Enduring Business Success
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