3 ms·

This isnt really surprising to me. What's the average lifetime of a company, even one that has reached maturity? I would guess much less than 100 years. I supp

This isnt really surprising to me. What's the average lifetime of a company, even one that has reached maturity? I would guess much less than 100 years. I suppose the waters are muddied somewhat by consolidation, in 1927 there were 10s(?) of thousands of car companies, today we're basically down to 20(?). No doubt many went bust, but many also got subsumed. The fact that 3/7 companies have outperformed Treasuries since 1927 is the surprising thing for me, not that 4/7 havent.

pletnes 7y ago
This is a very valid point. You should include now-defunct companies, as current investors can’t tell whether a company goes bankrupt next year.
- freddie_mercury 7y ago
  The study does include now-defunct companies.
countryqt30 7y ago
Make it even more extreme. I bet that the Treasuries would also outperform if you take 10'000 year timespan. Simply because: Which company would really survive 10'000 years, huh? So the total return would be 0. And as long as Treasuries>0, that research paper is little more than a fairly obvious statement, at best.
- lonelappde 7y ago
  What government survives 10K years?
freddie_mercury 7y ago
What does the average lifetime of a company have to do with it? I'm not really understanding why you think that is relevant to what the paper is discussing? The paper isn't comparing "Company A that was in existence from 1926-1944" vs. "Treasury Bills from 1926-2018". It is comparing "Company A from 1926-1944" vs. "Treasury Bills from 1926-1944". So the average lifetime of a company is irrelevant. I also don't follow why you think the waters are muddied by consolidation? The paper explicitly discusses how it handles "merger, exchange, or liquidation (CRSP DLSTCD with 2, 3, or 4 as first digit)". If Company B is founded in 1931 and merges with another in 1943 then its lifetime is 1931-1943 and it is compared against Treasury bills over that period, so there's nothing muddied.
- benj111 7y ago
  Company A started in 1926. It is either still in business, consolidated with other companies, or gone bust. If the company has gone bust (which I would suggest is most of them) it has probably underperformed treasuries, it is of course possible that dividends could make up for the total loss of capital though. A company that exists from 1926 - 1944 has seen its value go from 0 to X and back to 0, whereas the Treasuries haven't. Consolidation muddies the waters because you have potentially 10s of companies into 1. You've highlighted 1 way of accounting for that, there are other legitimate ways of doing it though. I was though thinking more that you can't look at a current list of stocks and a 1926 list of stocks, you aren't necessarily comparing apples to apples.

pletnes 7y ago

This is a very valid point. You should include now-defunct companies, as current investors can’t tell whether a company goes bankrupt next year.

freddie_mercury 7y ago
The study does include now-defunct companies.

countryqt30 7y ago

Make it even more extreme. I bet that the Treasuries would also outperform if you take 10'000 year timespan. Simply because: Which company would really survive 10'000 years, huh? So the total return would be 0. And as long as Treasuries>0, that research paper is little more than a fairly obvious statement, at best.

lonelappde 7y ago
What government survives 10K years?

freddie_mercury 7y ago

What does the average lifetime of a company have to do with it? I'm not really understanding why you think that is relevant to what the paper is discussing? The paper isn't comparing "Company A that was in existence from 1926-1944" vs. "Treasury Bills from 1926-2018". It is comparing "Company A from 1926-1944" vs. "Treasury Bills from 1926-1944". So the average lifetime of a company is irrelevant. I also don't follow why you think the waters are muddied by consolidation? The paper explicitly discusses how it handles "merger, exchange, or liquidation (CRSP DLSTCD with 2, 3, or 4 as first digit)". If Company B is founded in 1931 and merges with another in 1943 then its lifetime is 1931-1943 and it is compared against Treasury bills over that period, so there's nothing muddied.

benj111 7y ago
Company A started in 1926. It is either still in business, consolidated with other companies, or gone bust. If the company has gone bust (which I would suggest is most of them) it has probably underperformed treasuries, it is of course possible that dividends could make up for the total loss of capital though. A company that exists from 1926 - 1944 has seen its value go from 0 to X and back to 0, whereas the Treasuries haven't. Consolidation muddies the waters because you have potentially 10s of companies into 1. You've highlighted 1 way of accounting for that, there are other legitimate ways of doing it though. I was though thinking more that you can't look at a current list of stocks and a 1926 list of stocks, you aren't necessarily comparing apples to apples.