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“You make more money selling advice than following it. It's one of the things we count on in the magazine business - along with the short memory of our readers.” – Steve Forbes, American publisher.

I can’t say I’m a particularly patient person in my personal life, as my family can attest to. I eat rather quickly, hate waiting in lines, despise heavy traffic, and generally want to complete things quickly. I scribble notes constantly because I’m afraid that I’ll forget (and usually do) and don’t like to fill the schedule too far in advance. I find myself repeating myself frequently and end up telling the same old stories and jokes (that may be due to age, too). And I have a very selective long-term memory; sadly, I remember all of the bad decisions and experiences I've ever had. I still vividly remember the day I came back from a long business trip and my son broke his arm while jumping on my back. To this day, it brings tears to my eyes whenever I see the little scar on his arm from the surgery 5 years ago. And I definitely remember all of my bad trades over the past several decades.
 
Yet despite my personal behavior, our strategy is dependent on long-term thinking. We try to understand the industry dynamics and why this company can “win” long term, i.e. grow earnings ahead of their peers for the next decade and beyond. But we are also value investors which means we are buying when the stock appears to be cheap compared to its fundamental long-term value, the relative cheapness being driven from a non-structural or cyclical reason. We are counting on the short-term, backward-looking memory of the market. And so, the market will often assume that if things are bad now, they will stay bad. And if it’s bad for a few quarters, it must be structurally bad. I don't think I'm oversimplifying how the Japanese stock market reacts. A glance at most sell-side analyst models will show forward earnings trend essentially the same as the last few quarters/years. If they start bullish with an upward trend but it starts to turn for a few quarters, the forward quarterly estimates would now trend negatively and their long-term models (being 2~3 years) suddenly turn flattish or very low growth, often regardless of what caused that downturn. An analyst could be modelling in +10~15% EPS growth while things are good but when it falls for just a quarter or two, they will adjust the model to +0~5% for the next few years. And because of this, we’ve seen target prices get cut in half because not only does forward earnings growth fall, so does the multiple they apply to it … so a business that has been doing the same thing for decades and decades could see its target price fall 50% because the last year was rough, even if the long-term competitive advantage of the business over the industry stays intact.
 
Of course, the reverse is also true. Industrial and tech earnings had hit a low during 2022 and is currently in a YoY upswing off of easy comps with a currency tail wind. The market seems to ignore the difference between sales and orders or things like book-to-bill, forward capex, or even supply and demand. And margins are looking great with the yen at a 4-decade low and factories running at near full capacity, meaning manufacturing efficiency (and its profitability) is at its highest point. Even if demand is truly strong and continues to be so, you need to build more factories which can’t run immediately and hire more (expensive) people who can’t operate at high efficiencies immediately either. Even if the Fed pulls off a soft landing, I can’t imagine 2024 growth rates to be better than 2023 and couldn’t even say for certain if 2025 would either. Therefore, I believe one should be very selective in their investment choices and think long-term even more than in the past as we probably enter a slowing growth environment. And yet, the market appears to assume the perfect storm will continue at the same pace for the forseeable future.
 
Which is why I struggled with my quote this month. The obvious choice was to use the wisdom of the great Charlie Munger. But I found it hypocritical that so many news outlets used his wonderful collection of quotes to honor him. If you google “Charlie Munger Quotes”, you’ll get articles from CNBC, Yahoo Finance, CNN and other sites who are, like any mass media outlet, the antithesis of long-term thinking and probably can’t think past a 3-month investing horizon. I’m guessing you all are getting many inspirational quotes from public equity managers for your November monthly.

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Now I have nothing against short-term investing; I think it’s a strategy like any other including ours. I do not see it as superior or inferior. I feel the same about momentum strategies or even alternative assets like digital currencies (and we all know what Charlie Munger thought of them). If you are good at any of them, I commend you for it and wish you success. But I doubt if you’ll gain much insight from Charlie Munger. Not all great people need be revered by all. But I, for one, will miss his witty comments.
 
And I hope that the fundamental quality-value investors that remain after this year will stay true to the strategy.