Making the Case for Share Owners
The Wall Street Journal ran an article by Jason Zweig this week, "Picking a Stock for the Year 2048," which talks about the challenge of picking stocks that will perform well over a long period of time. The mandate is straightforward: a bunch of college students running a fund must assemble a portfolio of 15-20 stocks. The only catch is, they can’t buy or sell anything for 25 years.
The piece generated a lot of comments, mostly thoughtful. While the experiment seems counter intuitive to the current short-term market mentality, it got us thinking about how a long-term hold strategy might impact equity stories, expectations and due diligence when building out your investment case.
Some of the WSJ readers said this kind of buy-and-hold strategy makes you think differently about a business and ask: Is it really sustainable?
In the case of expectations, how do you manage this among shareholders and investors? So many problems stem from communication when talking to the markets. If a company can zero in on their vision by demonstrating execution momentum, due diligence becomes a reward, rather than a burden.
While it’s impossible to predict which companies will perform well over a quarter of a century, those companies with strong fundamentals, good governance, a history of innovation and multiple catalysts have a good chance at survival over time.
The world is, however, an unpredictable place. But companies that exhibit specific fundamentals may potentially be the most enduring. Here’s our thoughts on what investors look like over a longer-term horizon:
1. Demonstrate operational focus and continuous business model improvements
2. Be passionate about the solution/problem universe
3. Marshall an aligned team that can deliver on scale
4. Dynamic data-driven processes
5. Creating a new category in which you share the world of your making.
In the case of small caps, the race belongs to the swift, which means less savvy companies need to accelerate efforts if they plan to stay relevant.
We believe good judgment comes from perspective and experience. Contact us if you need help with your capital markets strategy.
