Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

A study by the management consulting firm McKinsey found that the average lifespan of companies

listed in the S&P 500 has fallen from 61 years in 1958 to less than 18 years today.

McKinsey predict that by 2027, 75% of the companies currently included in the S&P 500 will

have disappeared. So what happens to these companies? Well, many will be bought out, merged, and some will

even go bankrupt like Lehman Brothers and WorldCom did. Some companies keep on going. General

Electric, ExxonMobil and Procter & Gamble are amongst the oldest large companies listed

on the New York Stock Exchange.

It's worth noting, though, that age does not necessarily make a company any better.

In fact, evidence from the stock market indicates that age is quite possibly a hindrance.

Of the companies that have stayed in the S&P 500 for more than 60 years, only

a minority have managed to beat the average over time. It's worth noting that the biggest

companies today are quite young, companies like Apple, Microsoft, Amazon, Alphabet and Facebook.

If the S&P 500 was made up only of the companies that were part of the index 60 years

ago, overall index performance would have been around a third lower.

So what's happening with these large old companies and how do the companies that disappear differ from the old companies

that manage to survive?

Well E.F. Schumacher, a British economist, asked this very question back in 1973, when

he wrote his book Small is Beautiful.

In it he exposed the inefficiency and inflexible nature of large corporations. He argued

that what characterizes modern industry is its enormous consumption to produce so little. These

large businesses, he argued, are inefficient to a degree that goes beyond imagination.

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