Companies with a long history and established in their respective industries tend to perform well in the long run. Though there are few exceptions, established well reputed firms reward shareholders for their loyalty in tems of both stock price appreciation and rising dividends. A study by Credit Suisse in the UK market showed that established firms outperformed younger companies.
From a recent article by
A study presented in the 2015 Credit Suisse Global Investment Returns Yearbook highlights the benefit of investing in seasoned companies. The Credit Suisse study looked at the impact of seasoning on United Kingdom stock returns. Seasoning was defined as “the time that had elapsed from the date of a firm’s initial public offering.”
The study broke U.K. companies into four groups: Companies at the start of the year with three years or less of seasoning, those with four to seven years of seasoning, those with eight to twenty years, and those with more than twenty. Portfolios were rebalanced annually. The study was for the 35-year period ending at year-end 2014.
The following chart from the study shows that, aside from a short period of time around the dot-com boom, the greater the seasoning, the higher the returns. At the end of the 35 years, $1 invested in the group of companies with the greatest seasoning was worth more than three times as much as the same $1 invested in companies with the least amount of seasoning.
Source: Client Letter – August 2017, Richard C Young & Co
The key takeaway is that though some investors may be more attracted to the latest fast growing companies or the hottest IPO hitting the market, for most retail long-term investors the simplest way to success in equity investing is to stick with well established firms.
