The East India Company delivered 8% annual returns over 165 years. Meb Faber says investors in AI and space stocks should not ignore the state's role in capping even the most dominant companies.
The most dominant private enterprise in history delivered an 8% annual return. Meb Faber thinks that's a number investors in frontier AI and space stocks should keep in mind.
Faber, chief investment officer of Cambria Funds, walked through the East India Company's full financial history on a podcast this week. Chartered in 1600, the company controlled trade with India, then roughly a quarter of the world economy. At its peak it commanded a private army of 200,000, minted its own coins, collected taxes, and ran courts from a London head office of about 35 people.
From 1709 to the final state buyout in 1874, the stock returned about 8% a year, Faber calculated. Nearly all of that came from dividends. The price appreciated at roughly half a percent annually.
"If you bought during the euphoria – March 1769, when news of the Bengal tax grab hit London and the coffee houses were buzzing – you held for a century, collected every dividend, and rode it to the 1874 buyout, your return was flat," Faber said.
The catch was government. Parliament capped the company's dividend at every renewal and rescue. It charged a 400,000-pound annual fee just to keep Bengal. By 1813 the Indian monopoly was gone. What remained was a fixed coupon paid from Indian taxes. "The fixed coupon can't compound," Faber said. "That's why it went nowhere."
The same dynamic is already visible in today's markets, Faber argued. Nvidia and AMD pay Washington roughly 15% of export revenues to ship chips to China. The government holds a golden share in U.S. Steel. "That capping instinct hasn't gone anywhere," he said.
Faber drew a direct line to the valuations investors are underwriting for OpenAI, Anthropic, and SpaceX – all companies that could require enormous terminal value and durable margins over decades. "Blue skies can be very real, but so are the ceilings," he said. "The difference is the price you pay, and the state decides what you get."
What could reduce the risk? A policy environment that lets dominant companies retain more cash flow. What would worsen it? Tighter regulation, higher taxes, or export restrictions that effectively cap returns the way Parliament capped the East India Company's dividend.
Faber's new book, "Investing in America: The Rise of a 250-Year Bull Market," was published July 4.
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