Tuesday, February 17, 2015

The Most Successful Industry of the Past Century

What do you think the most successful industry in America has been in the past 100 years? A hint: it's home to the most successful company of the past 50 years.
If you guessed "automobiles" or "energy" or "food" or even "telecom," then man, I feel sorry for you, because you are some kind of moron. Okay? I'm sorry. Smarten up. According to a new Credit Suisse report that examines cumulative returns in 15 separate industries that have survived from 1900 up to the present day, one industry stands out as a clear winner, having posted close to 15% annual returns over the past 100+ years. (To give you some idea of how much things have changed—in 1900, railroads were more valuable than every other industry in America combined.)
America's top industry of the past century: tobacco. Morgan Housel notes that "One dollar invested in tobacco stocks in 1900 was worth $6.3 million by 2010. That's 165 times greater than the average industry." Furthermore, according to research from Jeremy Siegel, the single most profitable US company since 1968 is Altria, the tobacco conglomerate.
I hear you saying, "Because tobacco is addictive!" But you're wrong—idiot. (I also know you didn't guess tobacco as the answer to the question in the first paragraph so you have no leg to stand on, here.) Housel says that the tobacco industry's success lies not in the fact that its product is addictive, but in the fact that tobacco companies have no real pressure to innovate (they're basically selling the same thing they were in 1900), and in the fact that lots of people refuse to invest in them, which makes them a sweeter investment for the people who are willing to invest in them.
Morality is little more than an arbitrage opportunity in the USA.
[Image via Credit Suisse]

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