Robert Quinlin once said, “Good times are when people make debts to pay in bad times.” The over-reliance on debt is one of the most critical issues in business and finance today.
In Japan, more than 33,000 businesses have stood the test of time for over 100 years. These companies, known as Shinise, have thrived through wars, economic downturns, and natural disasters. Their resilience is nothing short of remarkable, generation after generation.
Most of these businesses are located in Kyoto, Japan’s ancient capital, where tradition runs deep. In fact, according to a study by the Bank of Korea, over 56% of companies older than 200 years are based in Japan. This is a testament to the strength of their business models and long-term thinking.
Take, for example, Nintendo. One of our fund’s past investments, Nintendo has been in business for 135 years. It started as a humble playing card maker, yet today, it’s a global leader in video games.
As Charles Darwin famously said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most adaptable to change.” Nintendo’s ability to adapt has allowed it to thrive in a constantly evolving industry.
One of the key reasons companies fail is excessive debt. In contrast, these long-standing Japanese enterprises avoid that pitfall. They hold sufficient cash reserves and remain debt-free, which is a cornerstone of their longevity and resilience.
Shinise businesses also excel because they deeply understand their relationship with their community. They maintain a high social standing, focus on building trust, and always think long-term. This fosters customer loyalty and strengthens their brand image.
Consider the story of Rick Guerin, who was once a partner of Warren Buffett and Charlie Munger. Guerin, though just as intelligent, was highly leveraged during the 1973-74 market crash. As the market dropped by 70%, he was forced to sell his Berkshire Hathaway shares at a steep loss to cover margin calls. Buffett later remarked that Guerin’s downfall wasn’t due to a lack of intelligence—he was in a hurry to get rich.
So why take on debt at all? While debt can be beneficial if used wisely, it can also be a company’s downfall if mismanaged. This is especially true in sectors like banking, where institutions are highly vulnerable during market downturns. Historically, banks have been bailed out by governments because their low reserve levels often lead them underwater during financial crises.
As time goes on, Western countries are also becoming more and more indebted, putting the future of their fiat currencies at risk, as well as inflation and future taxes.
The lesson from these centuries-old companies is clear: avoid excessive debt, nurture your community relationships, and always think long-term. That’s how you endure the test of time.
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
