Not all elephants can dance: Investors must identify the exceptions
Subscribe to enjoy similar stories. As the first page of any book on corporate law tells you, a corporation has an infinite life. But how long do companies actually last? A global study shows that very few companies cross 50 or 70 years.
Interestingly, the longest extant organizations are almost all ‘non-commercial,’ mostly educational and faith-based institutions. Even the longest running commercial company is a Japanese one in the business of constructing temples. Maybe there is a lesson in that! Yet, we are all often told that the simplest investing mantra is: “Buy old and large businesses.
Buy the largest company in the sector with the strongest brand." But does success last? The average age of a company in the S&P 500 was 32 years in 1965, it’s 20 years now and had even dipped to below 15. (Source: Statista). Look at the original BSE Sensex list from the 1980s.
The stocks there were not just large companies, they had mostly been around for many decades, with the sole exception of Indian Hotels. But the majority of those companies have disappeared or become irrelevant. Globally, remember Nokia, Kodak and BlackBerry (Research in Motion)? All dominant players at a time when magazine covers used to be about whether anyone could ever catch up with them.
Where are they now? And this is not just about being in a fast-moving technology business. In any case, when Kodak was running its film-based business, nobody thought it was a fast-moving high-tech area. The issue is far more fundamental than that.
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