Companies Die

Companies, just like human beings, follow a life-cycle. When boiled down to a rudimentary level, we can think of companies going through the phases of being born, growing through periods of childhood and adolescence, maturity after reaching adulthood and finally death.
A look at history
I recently looked up the oldest companies in the world. The oldest company on record is Kongo Gumi, a Japanese construction company that was founded in 578 CE  (that’s over 14 centuries ago!). The company was absorbed by a larger construction corporation (Takamatsu Corporation) just seven years ago after staying in the family for 40 generations!! The name, Kongo Gumi, however, survives as a subsidiary  of this construction group. Interestingly, a majority of the oldest surviving companies are Japanese – and 89.4% of all companies with more than 100 years of history are businesses employ fewer than 300 people.
The Dutch East India Company, or Verenigde Oostindische Compagnie, was one of the largest companies in the world founded in 1602. This was the first company in the world to trade shares in a public exchange, which eventually led to the creation of Amsterdam Stock Exchange. The company eventually went bankrupt in 1800. 
The first company to trade on the New York Stock Exchange in 1792 was The Bank of New York, founded in 1784 and still exists and publicly trades today. The company merged with Mellon Corp in 2007 and is now called The Bank of New York Mellon Corp (BK).
Dividends
The first ever dividend paid in the US was by a company called Citigroup (C), founded in 1812 and paid its first dividend in 1813. Unfortunately, Citigroup has lost its dividend paying streak and the title for the longest consecutive dividend paying streak goes to York Water (YORW), which has been paying dividends since 1816 (a 198-year streak!).
The oldest consecutive dividend paying company in Canada is Bank of Montreal (BMO), which has paid dividends since 1829, with The Bank of Nova Scotia (BNS) a close second that started paying dividends in 1832.
Companies die
The banking sector was hot and lucrative business in the 19th century and still continues to be. However, investors should be vigilant and monitor their investments while staying invested – as large corporations with a long history can go bankrupt and dissolve. The recent financial crisis provides us with plenty of examples of such events: 
  • Bear Stearns (1923-2008) was a global investment bank and securities trading and brokerage firm, which was absorbed by JPMorgan Chase (JPM).
  • Lehman Brothers (1850-2008) was the fourth largest investment bank in the US that went bankrupt in 2008.
  • Wachovia (1879-2008) was the fourth largest bank holding by total assets in the US, was absorbed by Wells Fargo (WFC).
  • Washington Mutual (1889-2008) was the largest savings and loan association in US that collapsed in 2008.

Stay Vigilant
Companies go through a life cycle of birth, growth, sustained maturity and death. Even if a company has had a great history and performed well in the past, investors should always stay vigilant on the future outlook and consider if the business model of a company is sustainable. The old adage buy and hold forever really should say buy and closely monitor. The new global economy, current environment and the connected world has made it easier than ever to start a new company. Whether a company will survive and thrive is a whole other story.
Disclosure: Long BNS, WFC. My full list of holdings can be found here.

13 thoughts on “Companies Die

  1. Consumers tastes change, industries change, things happen. A bad (usually greedy or stupid) management finishes most companies off. Is it any wonder why Buffett invests in companies with business models so simple they “could be run by idiots”. Sooner or later they may well be run by idiots. Thanks for the post R2R. Have a great week
    -Bryan

    • Thats right, Bryan. Even when “run by idiots”, a greedy management which puts rewarding itself before the good of the company will sink it. As the years go by, we see more and more greed from the management rewarding themselves wholeheartedly by giving themselves performance-based options. How long before that gets old?

      Thanks for stopping by and the comment
      R2R

  2. I love the post. Could you imagine retiring with shares of Kodak, Sears, GM, and Citi. These companies were titans 30 years ago and became dinosaurs very quickly. Blockbuster rose and fell like a poorly crafted rocket. I plan on having at least 40 different dividend paying companies and then I will watch them closely.

    • Thanks for the complement, MDP. Im glad you enjoyed the post.

      For sure, those companies were considered great and eternal a couple of decades ago and things turned quickly on them with the advent of new technology. Thats a good number of companies go give you enough diversification. I currently have 20 individual stocks and a few funds, but will be looking to expand that to more. I dont have a clear number in mind that I want to have…somewhere closer to 40 should be good.

      Best wishes
      R2R

  3. That’s one of the problems I see with the “buy what you know” approach to investing. Driving my GM car, taking pictures with my Kodak camera, eating donuts at Krispy Kreme.

    I like David Chilton’s twist on that philosophy: Buy shares in companies you do business with, but hate with a passion. Banks, teleco’s, utilities all have you over a barrel – you need their services – but we all love to hate them. Great for investors, not so much for consumers.

    • I agree with David Chilton’s approach, essential services such as banks, telco, utilities are great businesses and will always be around.

      There is always be some risk of disruption though – banks have seen record profits and they cant keep rising forever, telco already has thin margins and are looking for media as a new avenue of revenue growth, utilities are fairly safe but electric utilities are seeing their revenues cut as solar becomes cheaper and the mass adoption that is ongoing.

      Thanks for stopping by. Best wishes
      R2R

  4. Hi R2R,

    a great and wonderful article!
    That´s the reason, why I sprinkle my money on so many companies!
    If I have 50 or 60 companies – 1,2 or 3 companies can break down completely.
    That´s no matter to me!

    Scattering is the key!
    Scattering about companies, sectors, countries and currencies!

    Cheers!
    D-S

    • Hi D-S,
      Absolutely! Diversification of your investment between various different companies, sectors, countries and currencies is probably the best strategy for defensive investments. Even if there is a recession or if companies fail due to disruption in the industry, mitigating risk by diversification can help investors in the long run.

      Thanks for stopping by.

      regards
      R2R

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