Should we care about how long individual companies last? Economic change in recent years is driving a dramatic shift in corporate lifespan. In the US, accounting for two thirds of total global stockmarket value, the average listed company boasted an 85 year history in 2000, but that has since more than halved. The UK shows a similar trend, though less extreme. In the longer term the attrition is clear. Of the companies listed on the UK stock exchange in the middle of last century, just 1 in 1000 are still independent today. Notably, Glasgow's Weir Group is one of that small fraction. Investors can apply the lessons of company survival to how they pick shares and manage portfolios.
Business longevity gets little attention, yet Investment for retirement now involves longer time frames than typical company lifespans. Certainly, some of the disappearances are due to bids and mergers, which can represent profitable exits for shareholders. But investors may find after a takeover that a business changes from the one they wished to back. And when an acquirer is listed overseas, some individual investors are forced to sell.
The rapid US stockmarket change points to the dynamism of the US economy. Its strong growth and new business formation, contrasts with the UK and European Union. Recent research on large listed companies founded in the last 50 years shows that the US total represents 70 times the comparable EU value.
In terms of the very biggest listed companies the comparison is even more extreme. There is no EU company with a market capitalisation over €100 billion that has been set up from scratch in the last 50 years. However, all six US companies with a current individual valuation of over $1 trillion have been created in this time. Chipmaker, Nvidia, is the most recent success story. Technology has driven these global giants and the US has allowed rapid scaling up. EU competition rules aim to protect consumers but have prevented new national champions from emerging to compete on the world stage.
We are in a world where size and success are strongly interlinked. Recognising this, UK investors have moved more of their portfolios into US companies. This concentration may increase risk but research points to long term investment performance also being narrowly focused, with a few big winners delivering the bulk of stockmarket gains. In last 10-15 years, investors have made the most money owning companies that have not been around for long. Typically, a US listed firm now spends less than 20 years on the stockmarket.
Growth may be duller in the UK, but a few sectors have consistently demonstrated remarkable staying power. Consumer staples companies in particular, such as food and drink, have a long record of adaptation and survival, as have industrial firms with strong market positions. Healthcare and financial services businesses with deep roots in the economy are also sectors with long-term survivors.
Investors may want a balance of growth and resilience in portfolios. Global growth remains dull, pointing to the need for exposure to the most dynamic major businesses. Dominance in their markets gives them monopolistic characteristics and easy access to cash for investment. But given continuing technological change, investors may want to underpin their long term investment with resilient adaptable businesses that have demonstrated sound stewardship.
The key to look for those firms that have shown sustained evolution of their core products and services, investing in technology to support efficiency and customer value. Controlling debt levels to limit financial risk is also essential. These businesses may look dull, particularly the consumer staples, but their consistency and resilience is their strength. Growth and technology is the popular choice today, but complementing with some enduring businesses should balance portfolio risk