Good Companies Should Not Last Forever.

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A going concern is a business term used by accountants to describe a business that has the resources to continue making enough money to stay afloat for the foreseeable future.

This assumption is useful for accounting practices, but it could be overrated in the field of investing.

We tend to think that successful companies will be around for a really long time and certainly some companies like this do exist, Johnson and Johnson, General Electric and Coca Cola have all been in business for over 100 years trading as the same company they are today.

Even older companies exist if you follow the history of business mergers back to their beginning, JP Morgan Chase is the modern product of several bank mergers over three different centuries with the first constituent bank tracing it’s roots back to 1799.

Having early investments in any of these companies would make you a very rich person today, but you would also be a very dead person too, which reduces the appeal of this investing strategy considerably.

A recent industry report has found that one of the biggest mistakes that investors make is overvaluing the longevity of a company and its easy to see why with people like warren buffet talking frequently about how much $5 invested into coca cola would be worth today.

So it’s time to learn How Money Works to find out why businesses that last hundreds of years are not always the amazing investment they seem.

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#business #investing #finance

Edited By: Andrew Gonzales

Music Courtesy of: Epidemic Sound

Select Footage Courtesy of: Getty Images

[NekoBoyOfficial]

The fact people keep calling it Facebook despite the change to Meta shows how bad of a marketing decision it was. The name became so ingrained in society they thought they could just change it on a whim.

[brasssnacks]

One of oldest publicly traded companies in the world is The Hudson's Bay Company (AKA the Bay). They once defacto owned most of North America. Today they do okay as a department store and still hold a lot of land, but yeah a far cry from its height.

[SlabtheKiller]

The book "Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies" goes (as well) over the point of longevity of companies. An incredibly interestin read!

[SmileyEmoji]

The "hot hand fallacy" only really applies in business when considering profits. When considering longevity it is actually totally reasonable to expect an old company to outlast a young one. This is because of the sort of people who will be drawn to work for an old established company versus a "young dynamic" company. The former will inevitably be far more risk averse. This might well lead to a slow decline but is unlikely to see the sort of decision that might ruin the company next year. In short we expect to see less volatility in old companies.

[alcosmic]

The zeroth law of any organization seems to be to maintain its own existence whether it is doing anything useful or not.

[storytellers]

'Get in, get rich, get out' seems to be true for both price fighters & the largest companies in the world on a long enough timeline.

[crazycool]

The reason people like old companies isn't because they are old companies, it's because people like to invest in companies that are proven to have a secure economic and competitive advantage within their industry, and a tell-tale sign of such companies is their ability to generate profits year after year despite competition. The fact that they have inefficiencies means they have even more room for growth.

[huey]

You also have to remember what industry certain older companies specialize in. An older company like Hershey isn't going to be a high flying stock like Microsoft or Amazon but it's a leader in its specialty (chocolate). The other way they may survive is by either creating new products or by buying other existing companies in their niche. In this case Hershey bought out Wrigley (the gum company). Mondelez is a spinoff of the Kraft foods division which bought Nabisco from RJ Reynolds, the tobacco company. Kraft made some money from Nabisco but decided to focus on their cheese and condiments business while creating Mondelez to focus exclusively on snacks. Meanwhile, Church and Dwight has been around for over 150 years selling their signature brand Arm and Hammer.

[PBoyle]

Great Video, and thanks for the shout out!

[erdrick]

Reminds me a little of the gaming industry and it's seemingly endless need for growth. It's been a well growing industry for a while, but it feels like investors expect there to be infinite people willing to jump into games when there's obviously not.

Rather than improving existing products they're always looking to draw a wider net which has led to worse and worse experiences for many of them.

Or I could have entirely misunderstood this video and they're not alike at all. Just feels like similar situations in a broad sense.

[jimzimmer]

thats why i love meta, its killing itself, its a gold star for the ZUCC

[VincentNoot]

Facebook pissed every content creator off when they stopped showing business pages to every fan who liked it and required paid ads instead to show it to anyone.

[serpent]

I wish that more people knew/remembered that originally corps were intended to have a limited life intended to complete a project ot set of projects, then gracefully die off again.

[FengLengshun]

I think the problem is that these days big companies have a TON of patents and IPs that makes it hard for them to fall or for their work to be iterated as no one would let them expire. Disney is one thing, but there's also how software, code, and designs can be registered and restricted -- see how video games cannot iterate on ways to circumvent loading time tedium due to old patents.

[polkjmsb]

That japanese company must have immense cultural significance. I think you missed the part where it could be a marketing move, and of course, just a wish to not see that company die.

[jasonshaw]

Family-run businesses make this even more complicated. Such a businesses are rarely successful over multiple generations for a variety of reasons. There are exceptions to this though. If the family members are successful on their own and don't have much interest in the business they can be absent owners choosing instead to have someone or another entity run the business ( my father is in the process of doing this with his business as neither I nor my sister has any interest in the 40-year-old company).

[JRay]

The biggest failure for Instagram are its horrible search feature, terrible commenting tools, and rampant bots. Other then that, it’s actually a great social media platform, but I think those three items hinder it’s growth. Also, TikTok is doing it better.

[kalebbruwer]

It boggles my mind just how stupid Facebook is by betting so heavily on the metaverse. The best explanation I can think of is that they think they can will it into relevance by using their sheer size.

[alex_zetsu]

I think you're underselling longevity. Sure just shopping around for companies with _past_ longevity isn't going to be a great way to earn big bucks. But if I knew ahead of time if a company would last 30 + years from now without diluting its stock by issuing more to raise money (in other words if I knew _future_ longevity) I'd probably be rich in a decade even if that meant I got a few Kongo Gumis and missed out on a Facebook now and then. Granted, most outsiders (and probably most insiders) don't know the future longevity of their own company. But it's not a bad thing, it's just that past results are no guarantees of future returns. By the way, a good foul shooter is more likely to be on a 15 successful shooting streak than a bad foul shooter, so the streak for sports players, while probably overrated by fans, actually gives more information than streaks in stock prices.

[corgiman]

i dont know how weve reached a point where companies this big arent allowed to fail