As I continue to make my way through the book I am currently reading I find more insights. The latest is that older companies could be undervalued. We all remember the great blow-ups of Sears and GE but we don’t think about AT&T and Dow Chemical still trucking along.
What might be viewed as missing our or aging could be opportunity because one of the greatest investment questions someone can ask is will this company still be here in 20 years, and if a company has already survived for over 100 then they are more likely to survive another 20 than a company that started ten years ago.
Think of the Great Pyramids of Giza vs the house you live in. Which one is more likely to still be here in another 100 years. The number of 100 year old single family homes is low. The number of 100 year old cathedrals is high.
There is a difference between old and durable. Something that simply gets old doesn’t survive. Something that survives is by its nature old, but it became old by surviving. That is a lens through which viewing older companies should happen. It also might be where people make mistakes with speculative investing.
Think of something like quantum computing. The urge might be to invest in the newest company but putting money in IBM or Honeywell’s quantum company might be the better long term investment because they have survived. It is unknown if that survival will continue but having survived makes continual survival more likely.
That is why I get so frustrated when people talk about historic life expectancy. Infant and child mortality rates were through the roof. War, famine, and diseases were more common and more deadly, but if a person survived to their mid-30’s then the chance of surviving until their mid-60’s increased exponentially.
When people talk about people dying in their 30’s in antiquity it is wrong. A 30 year old was a survivor, an old man was an old man. The fact of people dying younger does not mean younger people died of old age. The distribution of averages matters more than the average.
That means when looking for the next investment asking what has already survived is as important as asking what’s next.
David Huzzard Writes 