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In thousands of textbooks on saving, e.g. for retirement or worse times, we can read that the best way to invest is money that we can afford to lose, it is best to invest money for long terms (counted in dozens of years, not in months), and that Periods in which most of the market comments are pessimistic and the market optimists are looking for a perfect moment to act.
As is usually the case with such general and simple rules, their application in practice causes many difficulties or at least requires clarification. We'll tackle one of the problems: companies don't last forever, and unlike us, their lives are getting shorter and shorter.
In April, 30 years have passed since the first session on the Warsaw Stock Exchange, where you could buy shares of five companies: Tonsil, Próchnik, Krosno, Kabla and Exbud. If we had invested then and - as the textbooks say - had “forgotten” about our investment, and today we would be taking a well-deserved retirement, and just after a great farewell party at work, we would have checked our bill, we might be surprised. First, not all of the stocks would appear on the bill. Tonsil went bankrupt in 2004, as did the Krosno glassworks and Próchnik, which went bankrupt in 2009 and 2018. Although the first two companies still exist, they are not on the capital market. In the case of Kabla and Exbud, we would probably see some sums of money instead of stocks - we would get them in exchange for getting rid of the securities during a tender offer. In these cases, our investments would be beneficial, because the companies were withdrawn from the stock exchange after they were bought by Scandinavian investors at relatively good prices. But unfortunately, the rates of return after adjusting for inflation would be negative, not to mention the fact that the money would be idle in the account. Comparing the stock index then and today, we could expect that our portfolio will be worth over forty times more than at the beginning. In fact, after adjusting for losses, it would barely exceed the sums invested thirty years ago.
Of course, someone can say that these were specific companies, that, for example, 1993 was better in terms of longevity of companies or that the portfolio has to be dealt with. Right. Scientists point out, however, that the processes of aging and dying companies are not unheard of and apply to even the largest and most popular exchanges and indices such as the S&P 500.
Richard Foster and Sarah Kaplan of Yale University calculated that the average life expectancy of a company from this index fell from around 67 years in the 1920s (although the index is formally counted from 1957) to around 15 years in the 21st century. does not mean that companies die (collapse) so quickly; the point is that many of them are withdrawn from the stock exchange, split up, taken over or are taken over by other companies themselves and merge with them or change their form to other than a joint-stock company.
According to Foster, the strategy of buying stocks and forgetting is worse than managing a portfolio and exchanging stocks re-entering the S&P 500 index. when we get rid of them, when we reinvest funds from received dividends, etc.), it strongly influences the conclusions.
Jeremy Siegel and Jeremy Schwartz of the University of Pennsylvania have concluded that buy and hold forever investing is much better than active (or rather too proactive) portfolio management. The difference in their calculations results from assumptions regarding transaction costs and possible interest income from some periodically uninvested funds. So the devil is in the details again.
One thing is for sure, this type of saving on your own requires maintenance work, sometimes seasonal, sometimes anniversaries. Leaving wallets (savings) forgotten can be disappointing when you want to use them. The world is changing faster and faster, and not all investing manuals have been adjusted to this pace
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