In 1993, Princeton astrophysicist Richard Gott compiled a list of all the then-current Broadway and off-Broadway shows and noted when each had first opened in New York’s famous theatre district. He then predicted, “how long each show would run, based solely on how long it had been running already”. Ultimately, Gott was proven right – with an accuracy of 95%.
Gott’s theory, known as ‘Lindy’s Law’, can be applied to estimating the life expectation of ‘non-organic’ products and services in various industries. For example, the publishing industry has a golden rule that if a book has been in circulation and selling successfully for a decade, it will continue in the same vein for at least another decade. If a book is successful for another 10 years, this raises its future lifespan to 20 more years.
We can use this law in investing as well as a useful counterpoint to the excitement that investors often feel when they see young companies and the “next big thing”. It’s easy to become convinced these companies will drive huge returns, but the better long-term investments are actually ‘marathon runner’ companies that have lasted a long time. Lindy’s Law translates into ‘the longer a company lasts, the longer it is to last’.
Marathon runners gain strength over time in a sort of anti-aging process. They can leverage their competitive advantage to drive more innovation and strengthen their position. When it comes to investing, big companies benefit from the ‘winner takes all’ rule.
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