Friday, August 05, 2011

Lifetime ROI of Once-Thriving Companies that Go Bust

Just 15 years ago, Borders was growing nationwide. They were wiping out the independent booksellers. Now they are going bankrupt. That reminded me of something I have wondered about, each time I hear the story of a relatively young, successful company that goes bankrupt, or is acquired on the cheap (e.g., Borland).

That questions is--if you invested in the company from "Day 1" of its going public[1], and held your investment through bankruptcy, what would your lifetime ROI be? It seems to me it would most likely not be very good. Most high-growth companies pay little or nothing in the way of dividends. So there wouldn't be much time between no-dividend growth company, and falling star, in which you might get nice dividend payouts.
[1] I want to define Day 1 in a way that factors out any IPO bubble hype. So let's say that is defined as 30 days after IPO.

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