"Samsung Electronics: A Whale in a Lake"—that's how I described the South Korean leviathan back in the late nineties when I was heading an equity research team based in Seoul. In 1999, the behemoth had begun dominating so much, and this was before the arrival of its flat-screen products and mobile phones, that its profits were larger than all the 160+ technology companies of the Japan tech index put together. And yet, Samsung Electronics’ market cap was less than 2% of the aggregate Japanese tech market cap. I would hear all sorts of justifications for the SEC’s deep discount to all tech companies globally (it was the third largest profit-making company in the world at the time), but none too convincing.
At the other extreme of market pricing was Taiwan: in a similar role, while based in Taipei in the mid-2000s, I found a ridiculously simple, disciplined strategy to keep outperforming in the local equities. If one invested in the top ten companies on the sales growth charts every month, such a portfolio would trounce the local index by over 15% a year, post trading costs. Taiwanese firms, unique in their practice of announcing monthly sales figures by a fixed date, created a different momentum nature for the market.
The simple momentum strategy for Mumbai, my next market, turned out to be previous periods’ price winners. One can surely deploy better momentum strategies, but the simple nature of some of these strategies and anomalies provide more than a counterargument to efficient market theories.
There's no universal rhythm to listed markets. Different sectors, eras, and even companies move to unique beats. Take the current AI frenzy around LLMs: talk to a non-US company, and the focus is on the lack of monetization. Their US counterparts, facing similar challenges, sing a different song – one of rapid development and future potential.
Logically, one would expect these disparate perspectives to remain disparate forever or lead to great equalization over time. In fact, it is neither, or both, or either that one knows much later! Investing in markets is different from investing in businesses. As in the Taiwan example, a nuanced understanding of businesses is not a prerequisite for success in equity markets. That said, investing through the learning of business currents also creates great portfolios for long-term success.
This week, amidst a turbulent market, it's crucial to remember where the true melody lies: in the businesses, the products, the innovations. Share prices will gyrate, grabbing headlines and influencing decisions, but they shouldn't drown out the progress. Just look at the Boston Dynamics video from this week – a symphony of technological advancement. Or the exciting announcements from Google, Intel, Meta, Baidu, and others – each a new verse in the ongoing composition of innovation. These are the stories that matter, the ones that drive long-term value
