Inspiration

This post was inspired by a great thread by @10kdiver on twitter. Check out the thread for great insights into the concept and their other threads on finance topics that are very well done.

10-K Diver @10kdiver

1/ Get a cup of coffee. In this thread, I'll walk you through a framework that I call "Lindy vs Turkey". This is a super-useful set of ideas for investors. Time and again, these ideas have helped me think more clearly about the LONGEVITY of the companies in my portfolio.

August 28th 2022

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What is Lindy?

The concept of the Lindy effect is that longevity of the subject is proof there it is durable and more likely to be long lasting and durable into the future.

The Lindy effect (also known as Lindy's Law) is a theorized phenomenon by which the future life expectancy of some non-perishable things, like a technology or an idea, is proportional to their current age. Thus, the Lindy effect proposes the longer a period something has survived to exist or be used in the present, the longer its remaining life expectancy. Longevity implies a resistance to change, obsolescence or competition and greater odds of continued existence into the future. Where the Lindy effect applies, mortality rate decreases with time.

Lindy Effect - Wikipedia

Lindy and the Quality Investor

Long term oriented investors most likely downfall is investing their capital in businesses that are destined for ruin over the short and medium term. Survival is the key to long term success of any investment. If you want a long term high quality investment to work, it must survive for the long term. This is easier said than done, but the age of the business is likely a telling indicator in some cases.

Lindy Businesses

I believe these businesses have demonstrated their likelihood for future life expectancy duration and some have the characteristics which will help them move into the category with time. These 7 businesses are all testaments to the endurance of certain businesses and the exceptions to the rule of mortality of businesses beyond a decade or two.

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Copart CPRT

Copart was founded in 1982 by Willis Johnson and has since evolved from a single scrapyard to a global leader in the space. It owns the majority of its real estate and has strong local moats with the NIMBY effect as well as a strong network effect moat via its large scaled network that is very challenging to replicate. Despite worries over autonomous driving reducing wrecks, there is much benefit to the technology that comes in modern vehicles as it is very easy to write off a vehicle the more complex and expensive the repairs are.

Adobe ADBE

Adobe was founded in 1982 and has successfully switched to a recurring revenue model for its software subscriptions. With insane margins and sticky revenue, it also has little competition. It is the standard for most of its offerings. It should benefit from any growth in the “metaverse” space with its connection to the creator economy and most importantly, it is becoming more and more intertwined with other critical and standard software products, notably Microsoft.

CP Rail CP

Canadian Pacific is one of the two major railroads in Canada and has since expanded by acquiring a major railroad in the US Kansas City Southern (still pending). It was founded in 1881. Recently, it has modernized its operations thanks to legendary railroader Hunter Harrison who was CEO and transformed the operations to improve margins and efficiencies greatly. There aren’t going to be many real competitors to railroads for effectively transporting freight, even with improvements in trucking and other alternatives.

Hermes HESAY (OTC ADR)

Hermes was founded by the namesake Thierry Hermes in 1837. Unlike LVMH, it has a strong focus on one brand and some argue could be the pinnacle of fashion luxury. While average consumers come and go, the luxury market is a whole other story. The limited supply and high prestige that comes with a brand as iconic as Hermes gives it a long lasting value that will only grow stronger with time, so long as the brand is well managed. The Hermes family still owns approximately 65% of the business and seem to still be focused on the long term which bodes well for minority shareholders with a similar time horizon.

OTC Markets OTCM

OTC Markets was founded in 1913 but was modernized to its current state somewhat more recently. It is essentially a small monopoly business that fills a niche. The more regulated the space it operates becomes, the more significant its stranglehold on this industry will become and the less likely real alternatives can exist.

WD-40 Company WDFC

WD-40 is a product that everyone knows. Founded in 1953 and has the same CEO since 1987. I don’t know if I can think of a more boring company. And yet, everyone knows the brand and you wouldn’t even bother to seek out alternatives. It is the standard. I can’t imagine why it could go away as there isn’t really anything that could disrupt it with technology or a superior product. Price isn’t really considered when reaching for it on the shelf. Hardly ever optically cheap, this is one that you should hold onto if you get an entry opportunity.

McCormick & Company MKC

McCormick was founded in 1889 and has been making people’s food better every day since. The spice maker cannot be disrupted by competition and enjoys the shelf space that its brand has cultivated. Customers will not be looking to save pennies in many instances when they purchase the spice that they know and trust. In some ways, they are the standard for the category and enjoy scale in their operations. Perhaps not the best business ever but certainly has withstood the test of time and looks to be well positioned to continue operations without disruption for some time to come. This is another one that is optically hardly ever cheap.

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That’s it for now, check back soon for more. As always, follow me on twitter and please share this with anyone who might be interested in my work.