This may veer into OT territory, but in times like these I think it’s vital that we act with a clear head and long term perspective. I think this perspective, from growth investor Ron Baron, from their 1st quarter shareholder letter, is a great reminder of the game we are playing, the current environment and the long term vision we all share. BTW, the fund owns many of the names owned by all of us.
Credit to my friend Vijay, who posted this in a chat room that we participate, and I thought it was important enough to share here.
The parts that particularly resonated with me are:
"A commodity cycle driven by rapidly rising inflation, the regulatory crackdown in China, and the geopolitical crisis culminating with Russia’s invasion of Ukraine led to a dramatic shift in investors’ risk tolerance and time horizons. As a strategy focused on Big Ideas, we tend to do well when investors are confident in the present and optimistic about the future. By definition, companies we invest in for this Fund believe they are creating or addressing huge markets in a unique, innovative, and often disruptive way with a very long runway for growth. Because they believe their growth to be especially durable, they overinvest and underearn today forcing investors to value them on cash flows that will be generated in the future. When investors lose confidence in the present, the future suddenly becomes more uncertain and less relevant, and the current free cash flow yield turns into the dominant valuation metric of choice. As Jeff Bezos and his shareholders found out in 2000, that is a tough environment to be overinvesting and underearning in. But stock prices aside (just for a moment), the fundamentals of many of our businesses resemble and “sound” just like Amazon did over 20 years ago.
Benjamin Graham famously said that “in the short run, the market is a voting machine but in the long run, it is a weighing machine.” In his 2000 letter to shareholders, Jeff Bezos wrote that Amazon is a “company that wants to be weighed, and over time we will be - over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.” That too resonates with us. Cycles will come and go. The booms, and the inevitable busts. At some point, the focus will shift from the “here and now” to what will this look like when the dust settles, and the clouds dissipate? We have never been concerned with the market’s voting and have tried to caution our investors against giving too much weight to our short- term returns, especially when they were impressive. Instead, we focus on optimizing for the long-term cumulative weight of our businesses. Investing in unique, competitively advantaged businesses with long duration of growth and strong unit economics that enable rising returns on invested capital is the most proven way we know of getting it done.
Back to the “Ouch!” quarter. Despite the brutal headline numbers, we believe we have actually done a much better job from the capital preservation perspective than those numbers suggest. While 52 out of our 58 holdings saw their stock prices decline during the quarter, we have a high degree of confidence that the overwhelming majority of these businesses did NOT suffer permanent impairments and that the intrinsic values of many of them are actually higher today than they were at the end of last year. The stock prices were down largely due to multiple contractions as the negative macro environment shortened investors’ time horizon causing long-duration assets (i.e., Big Ideas) to get hit the hardest. We have no idea how long the current “voting” environment will remain or when the proverbial bottom will be hit, but we have a lot of conviction that over the next decade, companies across industries will continue shifting workloads to the cloud, adopt zero-trust cybersecurity architectures, and continue to digitally transform. Penetration of e-commerce will continue to rise, and DNA sequencing and the use of genomics and proteomics will become pervasive in personalized medicine. Electric vehicles, autonomous, shared mobility will disrupt transportation. Better decision making across every sector of the economy will be driven by the analysis and usage of actual, real-time data. These dynamics will enable the companies driving these trends to compound their intrinsic values and to “accumulate weight,” which over time will be reflected in their stock prices."