At Oxford University, the students of St Catherine’s College are eating outside in temporary structures after crumbling concrete left the building unsafe to use. The problem is Reinforced Autoclaved Aerated Concrete (RAAC). This type of concrete was invented in the 1930s and is filled with air bubbles instead of aggregates such as gravel.
One of the benefits is air bubbles provide good thermal insulation, the other more important benefit is it is cheap. Given this, RAAC became the concrete of choice in the UK between the 1940s and the 1990s. However, the problem is the bubbles also allow water to leak in.
Built in 1962, St Catherine’s College is one of the newest in Oxford, yet it has proven to be the least durable. Christ Church College is almost 500 years older, but its students can still eat and study inside. This is because Christ Church is built out of limestone, the same material the Egyptians used to construct the pyramids more than 4,000 years ago.
The fact that St Catherine’s was one of the first colleges to fall into disrepair wouldn’t have surprised author Nassim Nicholas Taleb. In his book Antifragile, he introduces the concept of the Lindy Effect. Taleb’s summary of the concept is: “For the perishable, every additional day in its life translates into a shorter additional life expectancy. For the non-perishable, every additional day may imply a longer life expectancy."
In other words, for ideas and technologies, the longer they have already been around the longer they are likely to stay around. For example, the movie One Flew Over the Cuckoo’s Nest made in 1975 is much more likely to still be popular in 100 years than Avengers: End Game, the Marvel movie made in 2019.
Physicist Richard Gott explained it by reasoning that any random non-perishable item was just as likely to be near the end of its life as the beginning. It was this reasoning that enabled him to forecast in the 1960s that the Berlin Wall would collapse before the Pyramids. He then tested this hypothesis in 1993 on Broadway Shows. He predicted the oldest shows would also be the ones that lasted the longest and was proven right with 95 per cent confidence.
The Lindy Effect also applies to companies. Half of companies fail within the first five years, while 80 per cent fail within the first 20. However, a few last for hundreds of years and, like limestone, these hundred-year-old companies are much more likely to survive another hundred years than their younger competitors.
The world’s most famous value investor Warren Buffet values the Lindy Effect. Berkshire Hathaway’s top ten holdings include Coca-Cola, Kraft Heinz, Bank of America and Chevron; companies more than one hundred years old. In the case of Coca-Cola, which was formed in 1886, it has survived the Great Depression and two world wars.
Last week, Nvidia presented its new Blackwell graphics processing chip which it said was twice as powerful as its previous generation of AI chip. In the presentation, chief executive Jensen Huang said Nvidia was placed “to power this new industrial revolution”. Based on the fact Nvidia’s share price has risen 250 per cent in the past two years investors agree AI will be revolutionary technology.
In the end, Huang may be proven right about Nvidia. However, based on the statistics, it is much more likely that Coca-Cola, Christ Church College and the Pyramids will be around at the end of the Century than Huang’s business.
This isn’t to say that investors shouldn’t buy companies operating on the frontier of technology. Some will succeed and generate exponential returns. Just make sure there are a few older companies in the portfolio as well. Age is not a metric that is captured in any valuation models, but it is one of the best predictors of durability.
