Chart of the Week: Company Lifespan on the S&P 500
Key insights include:
- The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027 (Chart 1).
- Record private equity activity, a robust M&A market, and the growth of startups with billion-dollar valuations are leading indicators of future turbulence.
- A gale force warning to leaders: at the current churn rate, about half of S&P 500 companies will be replaced over the next ten years.
- Retailers were especially hit hard by creative destruction, and there are strong signs of restructuring in financial services, healthcare, energy, travel, and real estate.
- The turbulence points to the need for companies to embrace a dual transformation, to focus on changing customer needs, and other strategic interventions.
- What is the average lifespan for companies in the S&P500 currently (using a 7 year rolling average)?
- What has the trend been since 1995? Did the average lifespan increase or drop since 1995?
- What might explain what caused the change between 1995 and today?
- Why do you think the authors of this report expect to see the average lifespan continue to drop in the future (red bars)?
- Enrichment: What do you think the term "creative destruction" is used in a report that has this chart as one of the exhibits? If the pace of creative destruction increases, do you think this makes picking individual stocks more or less risky?
Hone those analytical skills using NGPF's Data Crunches.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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