The NEXT Trillion Dollar Company?

This company just signed a MASSIVE deal with Apple.

It gets their AI tech in Apple’s iPhones and iMacs until 2040!

But it goes beyond that.

The company is getting its tech into products by Nvidia, Google, and Samsung too.

Its AI tech is so crucial…

Nvidia is actually buying up the stock too.

They’ve invested more in this one company than any other… nearly $150 million.

Is this stock the next Nvidia… which has gone up 81,700% over the last 20 years?

Watch this breakdown of this stock right here.

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Nassim Taleb, in his 2012 book Antifragile, expanded on an interesting idea known as the Lindy Effect — If something has been around for a long time, then the probability that it will stick around for longer is higher.

This partially explains why people still read Shakespeare and Socrates but forget the bestsellers from the last decade.

Half of all companies fail within five years, and 80% in the first 20 years. However, some companies become outliers and survive for hundreds of years. So, in theory, the Lindy Effect applies to companies.

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Take Coca-Cola, for example — The company was founded in 1892 and survived the Great Depression, two World Wars, and the 1980s Cola wars, just to name a few. Not only did the company survive all this, it has thrived and increased its dividends for the past 61 consecutive years. Based on the Lindy Effect, Coca-Cola has a better chance of making it to the next century than Google.

If you are a value investor, this is an important but often overlooked factor. Ultimately, the company valuation is based on the present value of future cash flow. The problem with the current valuation technique is that we always project that the company will survive in perpetuity.

This is why it becomes so hard to value companies in their growth stage. A classic example is that during the dot-com bubble, economist Burton Malkiel pointed out that at Cisco’s implied growth rate (Cisco was only 15 years old at that time), it would become larger than the entire U.S. economy within 20 years.

But, once a company has matured, it will have an established brand, a loyal customer base, and a strong market position, making it easier to assign a fair value to the company. Buffett understands this intuitively, and it’s one of the key reasons why he only invests in established companies — The average age of the top 10 holdings of Berkshire is 113 years, with seven companies older than 100 years!

Performance of Lindy stocks

Survival is only half the story.

What we are really curious about is how legacy companies have performed over the long run. On one hand, older firms will have better structure, more efficient processes, better levels of productivity, and an easier time attracting new talent. But, on the downside, older firms will have a negative base effect (they tend to be larger), lower sales growth, and tend to move slowly.

To test this, we are leveraging this excellent dataset created by Boris Marhanovic, where he consolidated all public companies in the U.S. that were more than 100 years old. There were 485 companies on the list, and after some data cleaning, we are left with 73 target companies that we can consider as Lindy stocks.

To give you a flavor of the type of companies that we are investing in, below are the top 10 companies from our list of Lindy stocks.

Fun Fact: General Electric was the largest company in the world in 2001. Now it’s 60th in the S&P 500.

The results are surprisingly in favor of the Lindy stocks. $100 invested in Lindy stocks would have grown into $776 (676% return) compared to only $486 (386% return) if you had invested in the S&P 500. The cherry on top was that this outperformance was achieved with comparable portfolio volatility (12.3%) and max drawdown (55%) to that of the S&P 500.

Winners, losers, and some caveats

As with all portfolios, power laws are applicable here as well. A few of the winners contributed a major chunk of our portfolio gains. Even though we filtered for a minimum of $1 billion company valuation (as of 2000), firms like Moody’s, Equifax, Hershey, etc. managed to give us a 1,000%+ return.

But being a 100-year-old legacy company did not prevent you from wipeouts. GE was the biggest company in the world in 1999, and it has fallen by 25% in the last 20 years! This is the same period during which the S&P 500 was up ~400%! Other famous names include Citigroup, which never regained from the Global Financial Crisis, and Unisys Corporation, which never actually survived the dot-com bubble.

The astute among you might have noticed that we equally split the investments across our Lindy portfolio. If we do a market-cap-weighted portfolio, the results are not so impressive, and the portfolio slightly underperformed the market. This was mainly due to the biggest companies in the list (GE (12.5%), Corning (9%), and Exxon Mobil (7.5%)), all underperforming the market during the past two decades.

There are a few more limitations that you should be aware of before trying to replicate this [Portfolio raw data and holdings are shared at the end of the sheet]

• Our portfolio is not rebalanced annually, nor is it updated every year (with the new companies that make it into the 100-year list)

• The analysis is prone to survivorship bias — Given that we started with companies that were surviving as of 2017, there might be other 100-year-old companies that died off between 2000 and 2017.

• We believe a few, less objective quality checks like the industry tailwind, management competence, etc. could have improved our returns considerably more.

It is often said that time is the best filter for quality, and the only way a company can survive more than a century is to be a wonderful company. Jeff Bezos was once asked how Amazon became so successful, and his response gives us an insight into what it takes to build companies that last generations.

Finally, if you consider that our lives and the world around us are changing fast, we will leave you with this amazing passage by Nassim Taleb.