In investing, attention often gravitates toward fast-growing companies promising rapid expansion over a few short years. Yet, the most enduring sources of shareholder value typically do not come from explosive growth. They come from the slow, steady march of durable businesses capable of compounding and reinvesting earnings over decades. When a company can survive and thrive over long stretches of time, the duration of its cash flows becomes a far more important driver of value than the magnitude of near-term growth.
At Hemisphere, our investment process emphasizes these types of companies. The majority of the companies we own have existed for over half a century, with the average founding year dating back to 1926. Such extraordinary longevity is not merely a historical curiosity; it is evidence of business models resilient enough to adapt to new technologies, changing consumer preferences, and the ups and downs of economic cycles. Longevity often serves as a signal of deeply embedded competitive advantages.
The mathematics of valuation reward such durability. The present value of a business is the sum of all future cash flows. A company capable of generating stable, predictable cash flows over 50 or 100 years simply has more “years that matter” than a company whose prospects are limited to a shorter horizon, no matter how impressive the near-term growth may be. Steady and durable cash flows accumulate like compound interest: slowly at first, then powerfully as time extends.
This concept mirrors Warren Buffett’s long-held philosophy that time is the friend of a wonderful business. Buffett’s greatest successes did not come from owning businesses that grew the fastest in any single year. They came from owning businesses that continued to grow incrementally – decade after decade.
Durability, therefore, becomes a multiplier. Competitive advantages – whether scale, brand, distribution, network effects, or regulation – act as the protective moat enabling businesses to maintain returns on capital far longer than competitors can replicate. Over extended periods, even moderate growth rates compound into extraordinary results when supported by such moats. In contrast, businesses dependent on brief periods of high-growth frequently attract new competitors. Intense competition can result in declining marginal returns, long before sustainable compounding can take hold.
The long history of the businesses held in client portfolios reinforces a simple but powerful truth: lasting value creation emerges from businesses built to endure. As long-term investors, we prioritize durability and sustainability over short-term gains. We allocate capital to businesses equipped to navigate a range of economic cycles and exogenous shocks. In an environment where many chase the ephemeral, the capacity to endure remains one of the most undervalued advantages.