| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy


Finfacts changes from 2015

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate

 

Feedback

 

Content Management by interactivetools.com.

News : Innovation Last Updated: Feb 20, 2015 - 9:33 AM


Established industries often beat new technology investment returns
By Michael Hennigan, Finfacts founder and editor
Feb 11, 2015 - 2:55 AM

Email this article
 Printer friendly page

Established industries often beat new technology investment returns according to research published on Tuesday. While companies rise and fail in all sectors the researchers found that a strategy of investing in only companies which that had been listed on a public stock exchange for at least 20 years would have converted £1 into £60 since 1980. While buying the shares of young companies listed for less than three years would have made only £20 as many IPOs (initial public offering) falter after an initial surge.

Warren Buffett, the famous US investor, doesn't need to read this research and the compounded annual gain 1965-2013 of his Berkshire Hathaway [pdf] is 19.7% compared with the S&P 500 with dividends at 9.8%. The overall gain 1964-2013 is 693,518%  and 9,841% respectively.

The Credit Suisse Global Investment Returns Yearbook and Credit Suisse Global Investment Returns Sourcebook were published Tuesday.

In the 2015 Yearbook, the authors, Elroy Dimson, Paul Marsh, and Mike Staunton of London Business School, examine two issues: first, the long-run rise and fall of industries and the implications for investors; second, the rationale, costs and benefits of responsible investing.

The authors show that although successive waves of new technology have transformed the world, investors have not always been the main beneficiaries. Stock markets in 1900 were dominated by industries such as railroads which today have small weightings or are extinct. Meanwhile, today’s markets have high weightings in industries that were small or non-existent in 1900, such as information technology, telecommunications, aerospace, oil and gas, pharmaceuticals and biotechnology. Yet the authors show that US railroad shares outperformed the market over the last 115 years, while investment in new technologies has sometimes frustrated investors.

The authors describe how new industries are born on waves of IPOs, which, as a group, have underperformed. Stock returns tend to be higher for seasoned stocks, with older companies outperforming newer ones. They find that industry rotation based on value has generated a premium. This is consistent with there being periods of overvaluation for growth industries which this rotation strategy helps avoid; and periods of undervaluation for value industries which the strategy exploits.

Paul Marsh, emeritus professor of Finance, London Business School, notes, however, that: "Momentum appears to be an even more effective industry rotation strategy. Buying last years’ best-performing industries while shorting the 20% of worst performing industries would, since 1900, have given an annualised winner-minus-loser premium of 6.1% in the USA and 5.3% in the UK. Before costs, US investors would have grown 870 times richer from buying winning industries rather than losers."

The authors also show that many countries’ stock markets are highly concentrated within a few industries, while many industries are concentrated within a few countries. They conclude that, to exploit diversification opportunities to the full, investors need to diversify across a wide spread of industries and countries. Both matter, although there is evidence that globalisation has led to a decline in the relative importance of countries, with industries assuming greater importance.

The authors say investors are increasingly concerned about social, environmental and ethical issues, and asset managers are under pressure to be responsible investors. This can take the form of “exit” via ethical screening, or “voice” through engagement and intervention.

“’Exit’ typically involves excluding companies, industries or countries regarded as distasteful or unethical. However, principles can have a price, since sin stocks may perform well, as illustrated by the strong historical performance of the Vice Fund. Similarly, Dimson, Marsh and Staunton find that the best-performing industries since 1900 have been tobacco in the USA and alcohol in the UK. They review other research studies that confirm the superior long-run performance of sin stocks, and during recent years, they find better returns from the most corrupt countries.

Elroy Dimson, emeritus Professor of Finance, London Business School and chairman of the Newton Centre for Endowment Asset Management at Cambridge University, suggests that: “Ironically, responsible investors may be partly responsible for the higher returns from sin. If a large enough proportion of investors avoids sin businesses, their share prices will be depressed, thereby offering the prospect of elevated returns to those less troubled by ethical considerations”.

Nokia, Europe and Japan's old companies versus US young champions

Related Articles


© Copyright 2015 by Finfacts.ie

Top of Page

Innovation
Latest Headlines
Digital Taylorism: Amazon's chief rejects depiction of "soulless, dystopian workplace"
Most surviving startups do not grow; Tiny number powers jobs engine
Despite euro dip China & US remain most competitive manufacturing nations
Business startup rates up in most OECD countries led by Australia and UK
NASA's Kepler mission has confirmed the first near-Earth-size planet
Energy subsidies at 6.5% of global GDP; Commodity prices to remain weak
US startups rely on personal savings, debt; Venture capital funds less than 1%
Europe produces 13 $1bn+ "unicorn" startups in one year; London is Europe's digital capital
Irish-based firms raised €120m in VC funding in Q1 2015; Some top recipients Irish for tax purposes
Ireland: Fourth highest 25-34 year old ratio of third-level graduates in developed world: So what?
Business dynamism/ employer firm startups in US secular decline
Innovation Union Scoreboard 2015: Sweden, Denmark, Finland and Germany are on top
Education systems failing to provide students with skills for success in 21st century
US, Switzerland, Denmark, Sweden, Finland have best higher education systems
Handbook of Service Innovation: Ireland moving up the value chain?
Switzerland revives silk industry that thrived for two centuries
Sales of Irish tech firms create 300 millionaires in 15 years and no scaleups
Apple warns of 'material' tax payments from EU's Irish tax investigation
Apple earnings surge 33% on higher price and iPhone sales jump in China
Big Pharma's internationalisation of R&D to China
The dangers of romanticising entrepreneurs despite key role
UK and Irish business R&D heavily reliant on foreign-owned firms
Silicon Valley and the development of the silicon microchip - Part 2
Ireland: Innovation with or without R&D/ scientific breakthroughs
UK government most open/ transparent in world; Ireland & Greece lowest ranking in Europe
10 questions about Switzerland's Solar Impulse aircraft – answered
Silicon Valley loses its silicon; Typical household income stagnates - Part 1
21st century skills are 18 century skills + a computer
Growing ICT sector in Europe accounts for 5% of employment
Should Ireland copy Singapore's scientific research investment plan?
Startups vs Scaleups: 4% of UK startups have 10+ employees 10 years later
Irish patent filings at European Patent Office fell in 2014
Facebook's maze of privacy settings maybe in breach of European law
Apple to invest €1.7bn in Irish and Danish data centres
Silicon Valley insider warns of dodgy $1bn valuations of private companies
Israel's Startup Nation not a jobs engine; Nor is Irish high tech
Established industries often beat new technology investment returns
Ireland: Noonan said EU to drop Apple tax case; Now expects court case
Irish R&D Tax Credit: No evidence of rising business innovation; Facts don't matter
Apple reports biggest profit of a public company in history