The internet is awash with stories of toddlers throwing tantrums over bananas. Often it is because the banana is ‘broken’. My favourite is ‘because mummy couldn’t get the peeled banana back in its skin’.
As a mother who has recently survived the toddler-phase, I cannot help seeing parallels between this and the way equity markets behave sometimes. They may not have an absolute meltdown, but there is a lot of sulking and stropping. And I am not talking about almost unprecedented times like now when we are all working out the impact of tariffs.
We live in a short-term culture. Hedge funds run around $4trn and are among the biggest subscribers to analyst research, which means the investment world increasingly seems unable to think beyond the next 13 weeks.
The fact that the world’s biggest equity market, the US, requires companies to issue quarterly results does not help. (Little wonder, perhaps, that so many listed companies have gone private in the past 10 years. There are now over 11,000 private-equity-backed firms in the US, and the number of publicly traded companies there has shrunk from 7,300 to 4,300 since 1996.)
Investing should be simple. You buy shares in great companies that have strong management and great cashflow and are priced cheaply or fairly. Then you sit back and let the magic of compounding do its work – hopefully for several years to come.
The problem with a short-termist culture is that companies are expected to constantly match or beat analyst forecasts each quarter. If they fail, then it is ‘broken banana’ time. Fortuitously, these tantrums can create buying opportunities for the astute, because often there is a good reason for the ‘failure’.
A company with a healthy culture will not be afraid to invest in research and development and spend on capital expenditure where they see good returns. Good businesses continually invest in their people as well. They ride storms like we are currently experiencing and come out the other side stronger because their view is long term.
But in the short term, this can sometimes be a negative on the share price. The willingness to take a short-term profit hit to invest for long-term success is a characteristic we probably see most often in family-run companies. They tend to be less obsessed with extracting costs and expanding margins every single quarter.
One of my favourite companies is Eicher Motors, an Indian company that owns the famous Royal Enfield motorbike brand.
Royal Enfield is the world’s oldest motorcycle brand still in production. These classic bikes were used by Allied armies in World Wars I and II. Brad Pitt rode one in ‘The Curious Case of Benjamin Button’.
The brand had been dying when the Lal family – the largest shareholders of Eicher Motors in India – took full ownership in 1994. The company’s youthful chief executive officer (CEO), Siddhartha Lal, has been instrumental in reviving the brand. He appears in a leather motorbike jacket on the Eicher website and regularly posts pictures of himself riding the bikes on Instagram.
The company typically has close to 30% margins. It has avoided the race to the bottom to produce cheap bikes, instead focusing on quality, aspiration and service. When I speak to management they never talk about single-quarter margins.
Earlier this year, Eicher’s share price took a 12% hit after quarterly margins contracted. Had this been because the company was slashing prices to maintain sales volumes I would have been concerned. But it was partly because Eicher has been investing in growth – developing new product lines. These are set to launch this year and next – including the business’s first electric bike, the Flying Flea. Surely this is what long-term investors want? Interestingly, in the 24 hours after Liberation Day the shares barely moved.
Another company we find interesting is Campari. Like most of its peers in the beverage industry, this Italian drinks manufacturer has had a tough 12 months – a hangover, following post-Covid overstocking. Its share price is down around a third, even though it has grown sales in a falling market. The company has recently appointed a new CEO but the Garavoglia family still has a controlling interest.
This is another family-controlled company willing to take decisions for the long term. It has been investing in increasing production efficiency, quality and capacity to go after new opportunities for their bitters portfolio globally.
My whole family went to Italy recently in a bid to learn to ski (fear is more real as you age!) and the après-ski was full of people drinking Aperol spritz, an example of Campari expanding its market to new social occasions.
Last year Campari spent over €440m in capital expenditure – a significant hike on previous years. And there is a further €200m spend planned for this year. In 2026 it will finish that programme and return to what it calls a ‘normalised run-rate’.
The company has also made three acquisitions in recent times – Courvoisier, Capevin and Dioniso. The market is nervous that these acquisitions may not pay back in the short term – but the family is thinking about capital allocation along generational lines, not fiscal quarters.
By the end of this exercise it should have more brands and doubled production capacity for aperitifs, bourbon and tequila. It will have better business insights to improve production and marketing planning, as well as lower structural costs. The trouble is that the benefits will not be seen fully until the spirits cycle turns. That is beyond the visible horizon for many of today’s short-term investors. And so the share price has suffered.
As a portfolio manager, I want to take the long view, just like these companies do. That means seeing through market tantrums over quarterly results; it means seeing beyond the initial shocks of Liberation Day. For me, the increased volatility you see in a short-term world creates buying opportunities. When they come, we hope to take advantage, expecting the long-term investors who support us to share the benefits later.
I guess we should drink a toast and say thanks to those throwing market tantrums. They give more patient investors like us a chance to buy good companies at attractive prices. It’s nuts, you might say. Or bananas!
Natasha Ebtehadj is co-manager of the Artemis Global Select Fund. The views expressed above should not be taken as investment advice.