There Is No Need to Predict the Future: How 'Meta-Trend Investing' Teaches You to Find Growth Companies Ten Years Ahead

Many people likely believe that to earn significant profits in stock investing, one must find future growth companies earlier than anyone else.

Is that not what many people think?

However, reading ‘Meta-Trend Investing’ by Satoshi Nakajima, who achieved great success investing in NVIDIA, makes you realize that this is not necessarily the case.

What Mr. Nakajima emphasizes is not guessing what will happen next, but identifying major changes that have already begun and thinking about how those changes will transform society and industry over the long term.

Moreover, the information needed for that judgment is not necessarily a secret known only to a few experts.

Industry trends, corporate announcements, CEO interviews, and actual products and services.

Signs indicating future massive growth are hidden within information that anyone can access.

This book is a guide to thinking about how to interpret such information and connect it to investment.

NVIDIA’s success was not due to special information

Mr. Nakajima is known for building significant wealth through his investment in NVIDIA.

However, what is interesting is that this success was not brought about by special insider information.

What he focused on was publicly available information, such as trends in the semiconductor and computing industries and the future vision articulated by NVIDIA’s management.

Of course, just because information is public does not mean that anyone can achieve the same investment results.

What is important is not the information itself, but the ability to understand what that information means.

For example, even if a company’s CEO talks about a new technology, many people might just brush it off as a mere future concept.

However, if you think about what kind of industries will be born and which companies will profit if that technology becomes widespread in society, the information takes on a completely different meaning.

Reading future growth potential that has not yet been fully valued from public information.

I believe this is the core of Mr. Nakajima’s investment method.

Meta-trends progress over a span of 10 to 20 years

What left a particularly strong impression on me in this book is the concept of meta-trends.

A meta-trend is not a short-term fad, but a major current that changes the structure of society and industry over a long period.

Such changes progress on a time scale of 10 to 20 years.

For example, generative AI only gained global attention after the arrival of ChatGPT at the end of 2022.

However, the transformation of industrial structure by AI was not completed at that point.

Rather, it is from here on that many companies will incorporate generative AI into their actual operations and services.

Mr. Nakajima argues that even if you start using it after the public begins to buzz about how amazing ChatGPT is, it is still meaningful for understanding meta-trends.

I believe this way of thinking is extremely important for investors.

When a certain technology becomes a hot topic, we tend to think that we have already missed the investment opportunity.

However, if it is a truly major structural change, its impact will spread over many years.

Even if you miss the initial growth, there is a possibility that new markets and companies will emerge one after another thereafter.

What is important is not knowing about a topic faster than anyone else.

It is about discerning whether that change is a temporary boom or a meta-trend that will change society over a long period.

However, the continued adoption of technology and the continued rise in the stock prices of related companies are separate issues.

If significant growth is already priced into the stock, even an excellent company will have limited investment returns.

We must not forget that discovering a meta-trend is the starting point of investment, and that alone does not guarantee investment success.

CEOs who still have ridiculous ambitions even after growth

What is interesting about Mr. Nakajima’s approach to selecting companies is his evaluation of management.

He says he focuses on CEOs who, even after their companies have grown significantly, still hold ambitions that others might consider ridiculous.

This is likely not just about valuing a manager for making bold statements.

It is about whether they have the will to create the next massive market, rather than being satisfied with protecting a business that has already succeeded.

I believe that attitude is what matters most.

When a company grows, management tends to focus on the profitability of existing businesses and returns to shareholders.

That in itself is not a bad thing.

However, in industries with rapid technological innovation, being satisfied with current success can also lead to a loss of future competitiveness.

Can they transform their existing businesses themselves, and in some cases, take on the challenge of new businesses that might threaten their current revenue sources?

Such decisions require the long-term vision and leadership of the management.

Of course, a manager who talks about big ambitions is not necessarily a great manager.

Setting a grand vision and having the ability to realize it are two different things.

That is precisely why it is necessary to verify not only what the manager is saying, but also what decisions they have made in the past and how much they have actually achieved.

The importance of listening directly to the CEO’s voice

After reading this book, a habit I want to incorporate into my future corporate analysis is to directly follow the statements made by CEOs.

Mr. Nakajima utilizes interview articles and books by management as important sources of information.

From financial results summaries and securities reports, one can grasp a company’s current performance and financial situation.

However, to understand what a company is trying to achieve in 10 years, it is effective to listen to the words of the management themselves.

Especially for companies trying to create new markets through technological innovation, current sales and profits alone may not be enough to fully evaluate the company’s potential.

Mr. Nakajima recommends the Lex Fridman Podcast as an information source.

Lex Fridman invites AI researchers, engineers, and entrepreneurs to engage in long-form conversations.

The appeal likely lies in being able to touch upon the manager’s thinking, their understanding of technology, and their vision for the future, which cannot be conveyed in short news articles.

Also, the paid technology media ‘The Information’ is introduced as a high-quality source of information.

While general news reports on the events themselves, media that deeply covers internal corporate trends and industry structures may contain information useful for investment decisions.

However, it is natural that a CEO’s statements include the intention to make their company appear attractive.

Therefore, while it is important to listen to the CEO’s voice, I believe it is also necessary to cross-reference it with the movements of competitors, customer evaluations, and actual financial performance.

Three years for loss-making companies, within a P/E ratio of 20 for profitable companies

This book introduces practical benchmarks for judging not only long-term growth potential but also the financial safety of investment targets.

One of the criteria Mr. Nakajima mentions is to confirm whether a loss-making company has enough funds to last for at least three years.

This is a very important perspective when investing in growth companies.

Companies challenging new technologies or markets may record large losses in the early stages of their business.

However, no matter how promising a business may be, if it runs out of funds before it can generate profits, it cannot continue its operations.

Also, if a large number of new shares are issued to raise funds, there is a possibility that the equity of existing shareholders will be diluted.

Therefore, when evaluating a loss-making company, it is not enough to simply look at the sales growth rate.

How much cash does the company hold, and how much cash is flowing out annually?

How many years can the business continue without additional fundraising?

Such a perspective is necessary.

On the other hand, for profitable companies, he uses a P/E ratio of within 20 times as a benchmark.

The P/E ratio is an indicator that shows how many times the stock price is trading relative to earnings per share.

For example, if a company with earnings per share of 100 yen has a stock price of 2,000 yen, the P/E ratio is 20 times.

Companies with higher growth potential tend to have higher P/E ratios, but if expectations are excessively priced in, the stock price may not rise even if performance improves.

Therefore, just because a company is a growth company does not mean it is okay to buy it at any price.

Of course, the figure of a 20 times P/E ratio is not an absolute standard.

The appropriate P/E ratio changes depending on the profit growth rate, business profitability, and temporary accounting factors.

Even so, whenever I feel attracted to a long-term growth story, I confirm the financial safety and the reasonableness of the stock price.

I believe this serves as a useful reference for practical checkpoints.

UI/UX that determines the competitiveness of IT services

I felt it was characteristic of Mr. Nakajima, who has long experience as an engineer, to emphasize the importance of UI/UX in IT services.

UI stands for User Interface, which refers to the screens and mechanisms that users operate to use a service.

UX stands for User Experience, which means the entire experience gained in the process of using a service.

Having superior technology and being able to provide a superior service are not necessarily the same thing.

Even if a service is technically advanced, if it is complex and difficult to use, users will leave.

Conversely, even if there is no major difference in the technology itself, if a service is overwhelmingly easy to use, it has the potential to acquire many users.

Especially in fields where foundational technology advances rapidly, such as generative AI, it may become difficult to maintain a long-term competitive advantage based on technology alone.

In that case, how naturally users can use the service and how deeply it is integrated into daily operations become important.

As an investor, it is likely important to actually use the service, rather than just looking at product specs or technical superiority.

Mastering AI is also a skill for investors

In this book, Mr. Nakajima’s unique ideas on how to utilize AI are also introduced.

I felt this was a perspective typical of an engineer who has been involved in software development for many years.

For corporate analysis, it is necessary to read a large amount of information, such as financial statements, management interviews, competitor information, and industry reports.

If AI is utilized for such tasks, it is possible to significantly reduce the time required for information gathering and organization.

For example, extracting changes in management’s explanations from multi-year financial statements or comparing the strategies of competitor companies are among the tasks that AI excels at.

On the other hand, caution is required when using information output by AI directly for investment decisions.

AI can misinterpret facts, and it cannot accurately predict the future of a company.

The important thing is likely not to leave decisions to AI, but to use AI to expand human analytical capabilities.

This is a way of thinking that applies not only to investing but to business in general.

What to do after finding a meta-trend

What I felt after reading ‘Meta-Trend Investing’ is that what is necessary for long-term investment is perhaps not the ability to predict the future, but the habit of continuously observing changes in society.

When a new technology emerges, think about what kind of problems it solves.

Actually try using the products or services.

Listen to what kind of future the management is envisioning.

And then, think about which companies will profit in the long term due to those changes.

By accumulating these tasks, investment opportunities will likely come into view.

What I found particularly helpful was the point about trying to balance growth potential evaluation with financial discipline.

No matter how attractive a meta-trend may be, there is risk in investing in companies with precarious cash flow or companies where excessive expectations are already priced into the stock.

On the other hand, even if you only look at financial indicators, you might miss huge growth opportunities that have not yet fully appeared in the numbers.

That is precisely why both understanding changes in technology and society and analyzing a company’s finances are necessary.

Personally, I felt that in my future company analysis, I want to place more importance than ever on CEO interviews and books.

I also want to adopt the habit of thinking about what kind of changes will occur not just 5 years from now, but 10 or 20 years from now, regarding the markets to which the companies I invest in belong.

The important thing is not to discover a future that no one knows yet. It is to see through the true magnitude of changes that everyone is already witnessing.

‘Meta-Trend Investing’ was a thought-provoking book, not only for learning investment methods but also for thinking about how one should observe changes in technology and society.