Think of the Chinese Bamboo. After you plant it…nothing happens for three years. Nothing! And then, it suddenly starts to grow as much as 2 feet a day for the next 6 weeks and can grow to about 90 feet tall! Wow! The Chinese Bamboo is a metaphor for no results for long periods of time followed by extreme results in a short period of time.

And this phenomenon is everywhere. Our kids are also like Chinese Bamboo, aren’t they? Let me explain. I send my kids to school and pay tuition fees, but can I expect any return on that investment this year? Or next year? Or the year after that? No, no and no! In fact there wont be any monetary returns until they finish their education and start working, which would be several years from now. Does that mean, the tuition fees that I pay this year or next year amounts to nothing? No, of course not. Like the Chinese Bamboo, there is value building up slowly. Just because we can’t see it, doesn’t mean it isn’t there, right? Absence of evidence is not evidence of absence.

Businesses also have value building up inside them over time. As investors we study businesses to understand their strengths, weaknesses, their strategy and most importantly their investments for the future.  We want great returns on our investment and great returns depend on the Chinese Bamboo that these businesses are planting by developing new products or new brands, by entering new markets, by improving their sales and distribution machinery, by hiring and retaining great people etc.

Let me give you an example of a commercial real estate company in Mumbai. It owns a large piece of land in Mumbai and constructs office buildings on it. For over 3 years between 2016 and 2019, the revenues and profits from this line of business was a flat highway.

Anybody can mistake it for stagnation. But like Chinese Bamboo, a new building was getting constructed brick by brick. And it was finally ready to be leased out in Q2 2020. And, the Chinese Bamboo started producing phenomenal returns (a 80% jump in revenues and a 60% jump in profits with just 80% occupancy). And the stock market noticed it too and the price jumped more than 50% in a little more than 3 months. 

We felt like tearful parents at our kids’ convocation.

Likewise, we found an Indian company trying to take a consumer brand to the western world. Something, that hasn’t happened ever. And the company is building it slowly, one city and one country at a time rather than rushing into it all at once. Just as I am patient with my kids’ progress, I need to be patient with the businesses we own.

We think long term and we like business operators who think long term too. We look for companies that are planting these Chinese Bamboo in their organizations. We don’t mind the wait, but they better grow to be 90 ft tall!

Featured Photo by JuniperPhoton on Unsplash