The long-term case for compounders
In brief
- Market booms often lure investors into cyclical businesses, but history shows these cycles can be short-lived and expose investors to severe drawdowns and difficult recovery math.
- Compounders tend to deliver steadier, more durable profit growth across full cycles, making them better suited for long-term investors.
- Selectivity is especially important given the unique, negative economies of scale of some AI businesses.
In the heat of a market boom, the siren song of cyclical businesses can be almost impossible for investors to ignore. Whether it was the credit-fueled surge of the mid-2000s, the post-lockdown commodity spike, or the current frenzy surrounding hardware-heavy technology cycles,…
