Is Warren Buffet involved, I wonder? I’m reading “The Intelligent Investor” at the moment, and it seems to me the principles of defensive investing would align closely with this new exchange.
"They described the immense pressure on companies to pursue short-term results over creating value for future decades and generations."
Where does this pressure come from?
The board? Can't you appoint a board that is long-term friendly?
Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA?
Shareholders? Shareholders agree to all sorts of craziness if they like your company (see voting structure of Palantir, Facebook, etc.)
Maybe others can elaborate on what problem is being solved here.
I have no idea if this solves the problem, but I think the problem is shareholders. Specifically, a proportion of shareholders favour short-term profits, and those shareholders outcompete the long-term minded shareholders leading them to have greater influence over time. These short-term shareholders are extracting value at the expense of wider society, and it's a massive problem.
On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses.
If PayPal et al. had retained profits in the business for a long term goal, a substantial number of innovate companies couldn't have formed.
The more nuanced problem is likely that short-term and long-term shareholders' goals are mutually exclusive. That is, there is a rarely a strategy that's optimal for both.
Coupled with the fact that some businesses (apps!) favor short-term strategies, while others (biotech!) favor long-term strategies.
If you need money over the long term and you don't want to relinquish control, we have a thing called the bond market. Borrow for 5, 10, 30, heck, even 99 years and your interest is tax deductible! (Borrowing longer than 99 years the IRS may want to talk to you. Your bonds start to look like preferred stock.)
Wait -- the bond market won't lend to you cause they don't trust your ability to generate that return for the next 20 years? Go to the junk bond market -- they'll lend to you. In fact here's an idea go to the junk bonk market, and borrow money to take your company private -- out of the hands of those grubby short term shareholders.
The public markets aren't just designed to maximise shareholders value. Maximising shareholder value is supposed to be a means to maximising societal value. If the shareholder model isn't doing that then it isn't fit for purpose.
The perpetual, limited liability enterprise as legal person, owned via tradeable claims on equity, managed by professionals distinct from the owners, what we call modern financial capitalism, has been a boon to the world. Obviously it’s not the only way one could organize productive endeavors. But it’s pretty well understood that it produces greater long term economic growth than any other
competing system. It has known shortcomings, but maximizing shareholder value is a really good solution for the agency problem introduced by the creation of a non-owner managerial class.
> it’s pretty well understood that it produces greater long term economic growth than any other competing system... It has known shortcomings.
I mostly agree that it's better than other system that we've tried in the past (although I'd argue that the more highly regulated capitalism with higher taxation levels of the 60s-80s was slightly better than our current (post-90s) deregulated system).
But I'm a bit more ambitious than you. I don't think we should rest on our laurels and accept the known shortcomings. I think we can do better, and I think we should actively look at doing so.
I feel like maximising shareholder value is a mediocre solution to the problem introduced by the creation of a non-owner managerial class. I'm not entirely sure what the best solution to the problem is, but I'm convinced that we need a better one than the one we have.
One of the problems with the regular stock market is that valuations are not tied to the future cashflow of the company.
This isn’t how the LTSE works but it would be awesome if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years. Combined this with a minimum holding period, and I dare people to bid $300+ for Tesla stock :)
I don’t get it. There are already plenty of public companies that pay extremely predictable dividends. This is a popular investment type for retirement portfolios, among others.
The dividend is not based on their cashflow. So if Apple is paying 1% dividend on a $100 stock price, but their cashflows increase every year, they're still paying you $1 every year.
What I'm suggesting is an exchange where the dividend is a fixed % of their cashflows. Let's say it's 1%. If their cashflow is 1 billion, then 1% of it goes to their shareholders. If it doubles the next year, then 1% of that 2 billion goes to the shareholders.
Combine this with a minimum holding period (ie 1 year), and you've basically now made the stock price equate to its fundamentals. ie how much cashflow it's generating in the future. If investors think it'll go up, they'll bid the price up. not because they want to sell it to a greater fool.
As I understand it, the dividend is set typically in a dollar amount and the % is a metric derived from that. I agree that the figure is (usually) a bit nonsense. However, I don't think your phrasing is as clear as it could be. If Apple announces a 10% dividend with a 1T market cap that's $100b in distribution. If the market cap doubles to 2T later that year, that dividend payment isn't suddenly updated to $200b; it just shows up as a 5% dividend in your typical metrics.
The old Dutch joint stock trading companies were required by their charters to liquidate and return all capital to investors every couple of years. That enforces strict discipline on management. However after a few decades of that owners began to trust managers enough that a permanently capitalized enterprise seemed more efficient.
The development of modern financial capitalism is important and fascinating. These structures that we take for granted -- tradeable claims on assets, separation of ownership and management, perpetual life corporations, etc. -- all came about to solve particular problems.
Personally I don't foresee the LTSE succeeding, but I'm happy to see people try to innovate.
Yes, I feel like more of an explanation is required. Investors in existing exchanges already understand the different metrics companies might be categorized under -- value vs growth, for example -- and this seems like "extra-long-term value." But does that require a new exchange, or just a new valuation for companies? How about an index fund that invests only in such companies?
I would probably invest in a "Vanguard Long-Term Growth Fund," and I would assume that companies that got themselves on such a fund would want to stay there.
Perhaps the LTSE includes new rules for things such as how often stocks can be traded, but this isn't evident from that blog post, or the first one referenced in the post.
In Europe, companies like LVMH and L'Oreal has bonus dividends or extra voting rights for long-term institutional shareholders already. Essentially, if you hold onto shares for over 1 year, 2 years, etc., you can offer shareholders additional incentives.
Do you have a source for this? I don't see how that could be possible, unless they created a new share class for these long term investors.
The price of the share has to be adjusted at the dividend ex date to reflect the drop of value induced by the dividend payout. If not every holder of the share class benefited from it, then this is obviously unfair.
Now if you are talking about different share classes, then they would have to either be issued to current shareholders (e.g as rights issuance, in which case every shareholder could have them, long term or not), or publicly traded (same thing basically, everyone could have them, long term or not), or privately traded. In that last case, I would not really say this is "for long term investors", it's more a matter of private equity / politics / governance. Don't expect to enter that kind of deal unless you are a _big_ institutional investor.
> Despite ensuing controversy in the French legislature over the fairness of elevating one class of shareholder above the rest, the ability to provide prime de fidélité was enshrined in French law in 1994, with several limits.
So indeed they provide you with a different share class. What is amazing though is that they have what look like an automated process to convert your shares from public to registered (private with fidelity bonus).
Reselling these shares is not really explained in the page though. They seem to imply that your broker will swap them for regular shares that you can then sell on the market.
The pressure comes from investors. (The board is elected by shareholders, so in theory they represent the wishes of investors).
It's extremely difficult/rare to find investors who will just sit back and trust the CEO run the company as they see fit, particularly in a world where "unicorns" are going from zero to $billions in a few years. It happens occasionally, but only in the case of extreme outlier companies where the company is already a rocketship and thus the CEO/has already proven themselves - e.g., Apple/Jobs-post-mid-2000s, Facebook/Zuckerberg.
Whilst plenty of companies could reach huge scale over a longer period of time, it can be difficult for investors/outsiders (and indeed the management themselves) to know whether their company really is a slow-building long-term winner vs a zombie.
Perhaps what the LTSE is doing is attracting investors who are willing to be patient over a slow/long-term build, but to also work with the companies to ensure they really are on a path to long-term success and not in zombie mode.
I don't know why people continuously repeat this narrative. Two of the largest companies in the world, and in the history of humankind, are constantly marched higher by this "shortsighted" investor base: AMZN and TSLA.
People say companies pursue short-term gains but in reality they just mean they pursue things they disagree with. And herein lies the dirty secret: professional investors aren't short-sighted, they just don't value the things you do because (shocker) the average Joe doesn't really understand how to create shareholder value.
No, because the whole premise here is that investor behavior prevents this kind of bias. You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.
> the whole premise here is that investor behavior prevents [survivorship] bias
WTF? How the heck is some "investor behavior" supposed to prevent you (or I, or anybody) from succumbing to a common human mistake made when analyzing data and discussing it here in the comments-section?
> You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.
Back up: You're using a straw-man argument, a false version created out of black-and-white absolutes, rather than trends and high probabilities.
___________
Consider this fictional conversation:
A: "Playing the lottery is a sucker's game, you're almost guaranteed to go bankrupt."
B: "But look! These people bought a lot of tickets and won! They're multi-millionaires now!"
A: "That's survivorship bias. You're not considering the huge numbers of not-so-notable people who lost money instead."
B: "No it's a massive glaring contradiction to your core premise! You can't brush it off as bias!"
I said right in my comment there are exceptions, and inevitably the exceptions are the outlier-success companies.
Both companies you mentioned have had particular conditions that allowed them to be long-term focused. For Amazon it was that they achieved huge growth and cash flow from very early in their history and so Bezos has been able to call the shots. For Tesla it was that Musk was already rich and could spend several years investing his own money before needing outside investment. (And by the way, just look at the crap Musk has to deal with from a major segment of the investor community as he seeks to pursue a bold long term vision; and he’s one of the greatest force-of-personality founders ever).
These conditions don’t apply to unproven founders relying wholly on outside investment, working on opportunities that may not yield rapid growth and cash flow in the short/medium-term.
> Shareholders agree to all sorts of craziness if they like your company
In my very limited experience, it is the _company_ which must accept all sorts of craziness from the shareholders rather than the other way around. Which is also how it stands officially...
> Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA?
Not clear at all that they would, if individual officers expect to have to justify short-term-losses.
I'll give a shareholder's perspective. Management, when left unchecked, frequently engages in in wasteful empire building and prestige projects. The most apparent manifestation of this is in mergers and acquisitions. Decades of evidence shows that the median merger destroys shareholder value for the acquiring company.
Imposing strong controls on corporate management is one of the most important thing that shareholders can do. This might take the form of independent boards, which aren't handpicked by the CEO. Or the removal of poison pills (which raises the threat of a hostile takeover for underperforming companies). But most important of all is the existence of transparent, consistent, regularly evaluated metrics. That means quarterly earnings targets.
Like any job, CEOs need consistent feedback to keep their incentive aligned with those who employ them (shareholders). Management has shown time and time again, that when monitoring is weakened, they go off the reservation and destroy shareholder value. The good thing about earnings is that it's they're easy-to-measure, hard-to-fake tangible proof of continuing performance. In contrast stories about "long-term value" or intangible promises of future rewards are usually BS used to justify extravagant empire building while the CEO uses the company's balance sheet as his personal piggy bank.
Lest anyone think that evil Wall Street shareholders are hobbling visionary CEOs, observe the rare cases when management does prove its credibility. Prime example is Amazon, which time and time again has scarified short-term earnings for long-term development. And nobody could possibly claim that it's punished by Wall Street for this. The difference is that unlike 99% of CEOs, Bezos has conclusively proven his ability and alignment with Amazon shareholders.
Before he had the track record of long term development (only born from long term efforts) he knew how to speak Wall Street and had a track record on Wall Street.
Most CEO’s will never be capitalized like him for long term empire building so it’s hard to say there couldn’t be more Amazon sized successes out there if Capital was more accessible for longer term visions.
This seems sensible. If you want the goodwill from your investors to make a long term bet like Amazon did, you need to explain it to them in terms they can understand. It's a language anyone can learn with sufficient training and experience.
"go off the reservation" .. I suspect that my father many decades ago engaged in casual references like this, but I recall as a child that it was frowned upon by people who sought to reset and build positive relations between races in North America
It seems like a fact-based analogy. 'A group have been restrained to "territory", but a member has broken that restraint'. There doesn't seem inherently to be a judgement as to the restraint or the rogue being right/wrong.
I'd be interested in why you felt the usage was beyond the pale sufficiently that it needed to be reined in? The concept of territorial reservations doesn't appear to me to denigrate any group particularly; maybe I'm wrong in that?
Not the parent, but it's obvious what the origin of the phrase is, and while it may not be as icky as something like "open the kimono", it's definitely one that is trivially replaced with no loss in meaning, and therefore almost certainly should be:
"The issue with 'off the reservation' and similar phrases is that these things are said without any thought. They become a part of the common vernacular. Freely they move from mind to mind, mouth to mouth. Maybe the meaning of these sorts of phrases never should have been the issue. Maybe living lives without thinking about what we say and do is of greater concern."
Sure. No one is saying that the person is bad for saying it. Indeed, they're probably a good person, and for that reason may be interested in hearing why the phrase is better avoided. Particularly if their regular travels (friends, work colleagues, etc) may not put them in contact with indigenous people.
Would you use the phrase if there was a woman, especially an Asian woman present? If not, then that's your answer:
> “Opening the kimono” implies a coyness and sensuality that conjures up images of submissive Asian women reluctantly willing to show you their most vulnerable side. I understand why someone would use it just from the shock value alone. It took the wind out of me when I read it.
I wouldn't have thought much about when to use it, which is why I ask. Kimonos are worn by men and women. Its also Japanese in origin so it wouldn't consider it any sort of broadly Asian reference. Of course if people are taking it as such, I wouldn't use it.
>"The issue with 'off the reservation' and similar phrases is that these things are said without any thought
If they are said without any thought or connotation then is there really any slight against whatever group is the origin of the phrase?
He could have just has easily said "off in left field" which is arguably a slight against leftists and commies but has so long been a colloquialism that it has lost that connotation.
The name of the Washington football team was also used "without any thought", and that there was no need to change it as it wasn't meant as a slight against the group for whom the name is a slur. But it turns out that these things can be hurtful even if you don't mean them in a nasty way.
But yeah, "off in left field" is a baseball thing; no one is harmed or offended by that— even if you do apply it to politics or use it in a political context, as the WP article briefly mentions, politics are something you choose, not your cultural identity, so it really isn't the same thing at all: https://en.wikipedia.org/wiki/Out_of_left_field
Another interesting case is the phrase "balls to the wall" which has a harmless origin with aeronautics, but is spicy enough on account of an obvious alternative interpretation that it isn't used in polite company.
It is quite explicitly related to the reservations that colonists have pushed indigenous people to. In America this situation was particularly bad for many tribes, and in general connotes a significant loss of freedoms and impact to culture even when there wasn't specifically physically violence involved. The actual phrased specifically originated as a derogatory term for any indigenous person who was not staying on the reservation. Frequently in telegrams requesting the army arrive to and eliminate the band of native peoples who were not living on the reservation.
The phrase has the trappings of genocide baked in, and people who have learned of the history of their ancestors are going to be reminded of that whenever they hear it. Even if you are not thinking of any of that, the term is primarily used to indicate someone doing something odd/crazy/wrong, which is fundamentally implying that any indigenous person who has done so is odd/crazy/wrong.
I think most people understand that its use in everyday vernacular is not usually intended to be racially charged, but that doesn't mean that people shouldn't be educated on the phrase and try to avoid using it. There are lots of ways to express ideas, and it's probably fine if we don't use the ones that are fundamentally tied to racist connotations, especially when indigenous people in many countries (US, Canada, Australia, among others) still suffer from systemic policies and actions that leave them disadvantaged to this day. (Casinos on reservations are a band-aid and do not solve the fundamental problems, for example. In America only 200ish of nearly 600 tribes run casinos on their land, and of those 200ish, less than half pay out per capita, and only a handful make significant money from their casinos - the payout is less than 10k/yr per person for the vast majority - less than the federal minimum wage assuming a 40 hour workweek)
Cliff notes: Just because you don't see one doesn't mean it isn't there and that the people that have lived their lives impacted by it will not see one and be reminded of the genocide their ancestors faced and the results of ongoing systemic racism today. It's a bad phrase. We should try not to use it.
Yes, it is (probably) related to Indian/Native American reservations, but that does not mean every utterance of an allusion to history is perpetuating racial injustice.
Frankly having people like yourself chime in at every juncture to tell other people they are perpetuating racism is cheapening the actual historical impact of these events. If you care about the people you claim to defend then do something to help them.
Please keep in mind the GP/GGP comment to this was folded for being offtopic.
>Frankly having people like yourself chime in at every juncture to tell other people they are perpetuating racism is cheapening the actual historical impact of these events.
That's an interesting take, and not one that I think you will find in common with experts on the subject.
>If you care about the people you claim to defend then do something to help them.
I donate my time, money, and other resources to a variety of causes related to helping disadvantaged groups. I might largely be wasting my time in attempting to educate people on the internet, but it doesn't mean that I do not do anything else.
Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful? It's a phrase that is quite strictly Othering in nature. Not only can it be hurtful to those that have lived with the repercussions, but it also helps reinforce the Othering mindset in those who did not.
>That's an interesting take, and not one that I think you will find in common with experts on the subject.
Many of these "experts" typically use outrage to justify their continued employment. Most of them come off as genuinely deranged to most of the people I know, so this isn't just a me thing.
>I might largely be wasting my time in attempting to educate people on the internet
You're not educating people so much as finding chances to belittle them.
>Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful?
You're trying to tell someone they are racist while not holding any racist opinion but for saying magic words. This is nonsensical. If black people call each other "the n word" then a word and its historical meaning and modern meanings are not necessarily linked to each other.
More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.
>You're not educating people so much as finding chances to belittle them.
>You're trying to tell someone they are racist while not holding any racist opinion but for saying magic words
I have explicitly stated in multiple places that I do not believe people are racist or have any sort of malicious intent, and are likely unaware of the connotations. You can see multiple posts in this thread where I have stated this. I would, however, say that in an ideal world we all strive to be anti-racist, rather than just not racist.
>More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.
For the disenfranchised groups, sure. For everyone else? Not so much.
I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it. Most of what it says is arguing against positions that I have not held at any point, and is putting words in my mouth. I apologize, but I do not believe I can engage further in a productive manner here.
>I have explicitly stated in multiple places that I do not believe people are racist or have any sort of malicious intent
You're mincing words. If the people are above reproach then what they are doing is probably also above reproach. What you are saying is effectively "I'm not saying they or their actions are racist, but they actually are."
>For the disenfranchised groups, sure. For everyone else? Not so much.
This doesn't make any sense. The disenfranchised groups need to be empowered; everyone else doesn't need to be, they are already empowered (by your own logic). So if this works for the disenfranchised groups that should be enough.
>I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it.
I'm trying to point out your position isn't really consistent. If you want to help people then you shouldn't be trying to drag other people down. The points I am making are meant to show that, regardless of what you say, what you are doing "works" by trying to ascribe racism to people that are not exhibiting racism.
In some specific cases language use guides thought, but more commonly language is dictated by people's goals and the existing nature of reality. Language did not cause the world to exist.
Management left unchecked just does what they're incentivized to do. You can't pass on the blame as shareholders when shareholders create incentive packages that reward getting a bonus today for an acquisition instead of not really getting paid for sustainably growing the business over the next decade.
Management in many companies are just puppets installed for the purpose of keeping a person or group of persons in control. You'd be surprised at how many companies have management that has the decision making capabilities of a toddlers. And when I say toddler, I mean that in a literal sense. You can take an intelligent toddler and have them make day-to-day decisions that would be BETTER than middle-management.
People say that shareholders "own" a public company, but that ownership is much more limited than ownership in the normal sense. In reality shareholders have very little direct input on how the CEO gets paid. The best chance for shareholders to influence CEO incentives would be if an activist investor got involved and made it an issue, but that's fairly rare, and usually only happens in the most egregious cases.
Share loans are a really simple way to align incentives. Execs get shares loaned with interest at market value, and can’t sell faster than the loan repayment schedule of 20% per year after the end of tenure. Some other rules apply like dividends can’t be paid from a negative value loan. Sure, option incentive packages try to approximate this, but they can’t legally capture the downside like a loan can.
> Decades of evidence shows that the median merger destroys shareholder value for the acquiring company.
As an investor, I care more about the total (sum of average) returns of mergers, not the median. Just like in venture capital (where the median investment is clearly negative), the total return matters and is driven by the large returns on success.
I'd still be happy to invest in Berkshire Hathaway in 1955 even if you told me that their median merger over the next 60 years would be value destroying (so long as the average would turn out the way it has).
The evidence is that the merged firm is worth more than the two component firms, but it's the target that reaps the gains. This suggests that acquirers tend to overpay.
> Q. Would companies that list on the Long-Term Stock Exchange report quarterly earnings?
> A. Yes. By law, U.S. public companies are required to report earnings at least quarterly. The difference is that the listing standards of the Long-Term Stock Exchange are designed to change the narrative for success, so that the quarterly results are viewed in context as part of a long-term narrative.
> Long-term focused companies should consider a broader group of stakeholders and the critical role they play in one another’s success.
The focus seems to be less on constraints on traders and trading, and more on policies that companies listed on the exchange must fulfill. So the LTSE doesn't have to be the exclusive venue for trading and a company can be dual-listed on LTSE and another exchange — the mere fact that the company is listed on the LTSE gives you a crucial piece of information.
I read this article and skimmed the original and I'm still not sure what the exact details of this exchange are. No robo/quant investing? Minimum hold periods? No requirements for quarterly earnings? No penny stocks?
> Operating principles: In an earlier SEC filing, LTSE said that its corporate governance rules might include: increased voting rights for shareholders who hold company stock for long periods of time, restrictions on offering short-term incentives to executives, disclosure of impact of any stock buybacks, and requiring companies to have a board-level long-term product and strategy committee.
This would add a level of indirection to stockholders trying to influence the company though, right? You have to make the fund managers put pressure on the company to give you short term gains, rather than pressuring the company directly.
In a prior post the founder claimed that there are ways to deal with that. After all, AIUI stocks in the States are already actually held by the Depository Trust Corporation, so the system already deals with indirection.
Agreed. I suspect that it's more like "The Stock Exchange For LongTerm(TM) Certified Companies", so more like the requirement that exchange-listed companies are at least 70% public.
Presumably that could mean requirements on board memberships, dividend levels, types of employment perhaps? I find it a bit hard to see what stipulations they would have that aren't just good governance.
Eventually, the only policy with teeth will be a minimum investing period. So don't worry about reading news of waste or fraud at a company, you can't sell anyway.
It looks like a SaaS analytics platform. Maybe they will have different data than normal Quarterly reports coming in from companies who want to be part of the exchange.
Porsche SE was banned from certain stock indexes because they refused to publish quarterly reports. They claimed that too frequent reporting is not beneficial for companies. You can purchase Porsche SE stocks, but they are not listed in the DAX, which is the largest German stock index.
There is no difference in incentives on the market itself. They just make the companies which are traded on their platform sign an agreement before they are allowed to be traded.
I think in practice this means that no one will use this exchange...
Same here. I was looking all over the site for "the idea" or the differentiator ... couldn't find it.
I think most of the approaches you mentioned wouldn't hold up for a large stock exchange because some off-platform trading site would spring up to fill the gaps. For example, you have a minimum holding period, but off-platform you can "sell" your shares at the current market price, then transfer them for free once the holding period ends. Or something.
I think you have to change the way the shares themselves work somehow (or how dividends work, etc). I'm not sure, seems like a hard problem.
So how do we monetize this? I see the idea is the long term goal of sustainability, but how does one get their money out at the end? I wouldn't have these expectations for most of these initiatives, except for the use of "stock exchange", so I expect there to be some reason to exchange stock. Call it "the green list" or something if there's no money to be had, and that's totally fine, but the name doesn't match the goal.
Modern executives have incredible pressure to hit quarterly numbers and the ones that provide value in the long term are the ones that can effectively ignore this pressure.
Short term pressure also forces firms to play accounting games like taking big goodwill impairment losses in a down quarter, so they don't need to perform a writeoff in subsequent quarters.
This is a good example of an accounting trick that should not be allowed by an exchange-listed company. It’s simply a trick to make a loss not count against earnings. It’s not even shown as a liability like a self-loan would. In M&A situations it’s usually shown as an asset. The point being that you can’t trust the earnings number and you can’t trust the balance sheet asst value, so you really don’t know anything about a stock. I’m surprised that no analyst firm has published a common GAAP-based valuation. Perhaps because it’s impossible, but that underlies the problem for small investors.
Great, a new service that lets any present issues with a company be excused in favor of some forever-distant "long term". And why is it even an unalloyed good that a company persist over a "long term"? If someone else can do better today, I want to move investment to them today.
The thing missing from this article is: What does this actually mean? When will companies start listing? Who will start listing? How do companies list? What are you offering? etc.
I’m still trying to understand the rationale. They should create a comparison against the current public markets to highlight the differences.
Based on the “long term”, I’m guessing the core concept is no quarterly reporting, so companies can focus on long term initiatives.
However, how do they explain Amazon, who reinvested what would be their profits for over a decade, to continue expanding their business and build the massive Walmart juggernaut? All Bezos had to do was describe the strategy to the market, expand quarterly sales, and many investors were patient over the years.
Sounds like something designed to impair price discovery and efficient allocation of capital.
Ultimately this will rise the cost of capital for the companies listed there.
The only way I think investors could invest more in companies with a long term view is better margining so you could borrow money to invest in companies without getting margin called. Eg you can buy a house with 5% down, but you can't do this with stocks because normal volatility means you'll likely be wiped out.
I suppose this is possible if it was an amortized loan against personal liability like a mortgage. Clearly there is more volatility in the asset, so the risk would have to come down by insurance. I think it would get quite expensive to service these loans.
You can buy (and sell) options to limit the impact of that volatility.
But I'm not sure why you would want to encourage margining when you are against volatility? The capital for the margin loan has to come from somewhere too.
So instead of person A putting up 5$ and borrowing 95$ to own 100$ in stock, and person B lending those 95$; it might be better for volatility for person A to own 5$ in stock and B to own 95$ in stock?
I am not sure.
For full disclosure: my investment strategy involves margining.
(Btw, I do think that 5% equity on houses is bad. It's mostly a function of land prices going up so much.)
The density of unsubstantiated platitudes in the marketing for this is high even for silicon valley. There's a good evolutionary reason human beings focus on short term thinking. We have no demonstrable ability to forecast into the distant future!
Corporate governance is eff'd, and does promote short-term shenanigans, but technology that enables shareholder governance is the solution. Not just avoiding the price discovery process.
Suppose LTSE becomes a thing, and they find some companies that they can certify as Long-Term(TM). What stops those shares from being traded on some other exchange, eg BATS?
What is it about the venue that makes it special? It seems that once an investor thinks a company has some desired characteristic, all they'd care about is where to get the shares as cheaply as possible.
I think the companies can be traded on any exchange - it's not really a function of stock price. The LTSE kind of venn-diagrams around the requirements of the other exchanges (for now). So a company is then held to different (greater) standards (even if its also listed on other exchanges).
NMS shares can trade on any exchange, but there is still a primary listing exchange. They're mainly (AIUI) responsible for publishing data on various administrative minutia such as the handling of dividends and splits. I imagine most of LTSE's attraction to companies is enhancing the perception of only accepting listings from companies with a long-term view
Much like as an investor you'd think twice before purchasing an OTCBB share today, or perhaps 30 years ago pay more attention to the difference in listing requirements between Nasdaq and NYSE, I think that's what's intended here
Genuine question, what good does the ability to buy and sell stock on the short term do for humanity ? Does it have any specific vertue appart from allowing one to make make money by betting correctly ? Why are not all sales required to be long term ?
I think we can both agree that there is a lot of value in knowing the "actual value" (as opposed to speculative value) of things in our society. Knowing the actual value of things is impossible for multiple reasons it (it changes very fast and is just intrinsically very hard). However, given a big incentive (making money) we can let the market estimate the value of goods for our society. This speculative valuation is far from perfect, but it is the closest we can get to the actual valiation of goods/institutions.
It turns out that is one of the most important things to do in modern, capital intensive, economies.
It also means people can invest for shorter periods and that means more capital is available for investment. This has a double bonus where it reduces the risk of investments again making more capital available...
Imagine if you're a would be investor. You're money is available now to invest. So you want the market to be open to let you buy. Otherwise that cash is just sat there waiting. Similarly, you want to invest all your money. But if you know you won't be able to get it back for X period of time then you can't can you? You might not even know how long you can invest for: I might reasonable expect not to need some cash till Christmas time but if I lose my job tomorrow I want it now please!
So a market where you can buy and sell rapidly makes you more able and more likely to invest. That's good for you as you can use spare cash productively and make a profit while still being safe if you suddenly have a change in circumstances. It's also it's good for the company you're investing in as they can raise capital quickly and there is more capital available. And all of this means more growth and lower costs and that means more tax money for social services and more jobs for other workers etc.
The analysis for the people receiving the investment is similar but a bit more complex because the company doesn't just get investment, it also get's information: a rising share price tells you you should expand, high prices in general indicate a great time to start new businesses, a competitor whose share price falls while your one rises has issues and might be open to a merger\takeover etc.
I am a long term investor. Long term investors like me still need to buy or sell stock occasionally, even if only to live out their retirement eventually.
There's no good reason to assume that for every long term who wants to buy or sell on a particular date, there will be another long term investor on the other side of the deal.
So a special kind of short term investor, called a market maker, jumps in. Market makers typically hold a small amount of inventory and offer to buy or sell stock.
Market makers allow your grandma to sell stock any day of the week without worrying too much about timing.
If there was no short term market then long term buyers and sellers would have a harder time buying and selling and it would cost them significantly more.
So excited to see this vision come together Eric. I honestly hope one day we're taking HMBradley public on the LTSE. I have never felt more aligned with a mission or a vision, Systematically allowing companies to take a long term view without being punished is what the market needs.
Or put another way ... Adam Smith > Milton Friedman
I cannot wait to see where this goes and the mechanics LTSE puts in place to help reward long term thinking and long term holders
The simplest answer to this is regularly tying executive compensation to short term stock performance ... it leads to more Jack Welch's and less Jeff Bezos' ... Ballmer is another prominent example, Microsoft all but died under him while his key metric was stock price, that's not a win in my book
Not any technical details. Doesnt make sense. Short time speculators are not an enemy for long time investors. Also, doesnt make sense to enforce long-term view on exchange level.
I wonder what the actual business model for the company is and how the incentives from this will affect the LTSE vision behind "long-term investing". As far as I have seen on the website the company runs various freemium SaaS products like captable.io, startuprunway.io and hiringplan.io. They obviously want or need to monetize on that.
it feels like the third page in the godaddy checkout flow where it's like 'maybe you need our wordpress, email, and VPS hosting in order to launch your website'
also feels like a data grab. traditional exchanges don't collect this stuff, and the SEC doesn't collect most of it.
I spoke to a recruiter for LTSE a year ago and they were hiring lots of engineers to compete with Carta.
I was a bit disappointed with the pitch; sure Carta is useful but I had hoped LTSE was a place to do some really revolutionary stuff. It seems like that aspect of the company is a ways off and from my limited understanding, it doesn’t seem like today’s announcement makes it tangibly different than NYSE.
I’m neither a banker nor a major investor so I’m really curious to understand how they see this as a paradigm shift. For now it looks like a stock exchange started by someone I really admire but not much else.
Companies built to last are built that way from the start. The culture and contracts baked into the companies follow them for life. That's why we build software for ourselves and our fellow founders. I wrote more about this here: https://shan.io/writing/ltse-launch-americas-newest-stock-ex...
Just throwing this out there... Why not a simple rule to require all shares to be held for at least 24 hours before selling? It would certainly change the game in every way imaginable.
Not just powerful vested interests. Anyone who knows anything about economics knows that transaction taxes are bad for efficiency etc.
Tax wealth for all I care. But don't tax transactions.
(Btw taxing transactions would actually make financial speculation more profitable. Because bid/ask spreads would become wider and prices more volatile.)
> powerful vested interests would probably fight it tooth and nail
Minimum holds are very different from trade taxes. (The latter is stupid for a variety of reasons.) Minimum holds would make market making more profitable.
Market makers are good for widows and orphans. You don't want your grandma to have to be careful with the day of the week or time of the day when she sells her stocks.
How do I create an LTSE account and start investing? I went to https://ltse.com/, clicked on the menu and selected "Exchange". But I only see marketing material.
You'll probably need to go through a broker - you don't buy directly from the other exchanges like NASDAQ either. If/when any brokers are on board I'm sure LTSE will be sharing that information.
Hmmm, a bit disappointed after reading their blog and site. I expected that they'd integrated some clever rules around stock trading itself in order to force, or encourage, long term thinking. I expected something along the lines of, "no shorting allowed", "stocks must be held a minimum of 6 months", etc. There was nothing like that, all they have is the rule, "come on guys, think long term".
I fail to see how this will have any meaningful effect on "long term vision", if they still allow your stock price to be dumped at the first sign of trouble, or allow people to bet against your company when some irrelevant bad news hits, or no one else sees value when you decide to deepen your spend on R&D for some long term plan. If people freak out, or think they can profit off of your lack of current obvious value, the you are still going to have short term fluctuations that you will feel pressured to address.
The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors. Shareholders are not gonna understand your vision every time you decide to engage in a long term strategic shift in priorities, so they will react when they find out, and that reaction can swiftly damage a company's value. If shareholders can still trade over short-terms, then you will still have large scale short-term fluctuations that CEOs will be forced to address, as more and more potential buyers will be influenced by the low price of a stock caused by other skittish short-term thinking investors.
The problem is with investors in stocks, not with the companies unwillingness to think long term. To make such an exchange work, you have to have clever trading rules in place to force longer term thinking.
> I expected something along the lines of, "no shorting allowed", [...]
That would at least be an attempt. Though to be honest, (other people doing the) shorting is actually very good for the long term shareholder.
> The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors.
It's not that investors are short-termist. Far from it. See eg how shareholders react to Amazon or Tesla.
The problem is the principle-agent conflict: shareholders in general have a very hard time monitoring management. It is neigh impossible to tell a manager with a grand vision that will pay off in 20 years from a manager who burns capital on harebrained schemes for 20 years. Especially impossible to tell before those 20 years are up.
That's why investors are so keen on early and hard to fake signals. Returning cold hard cash to investors is one of those signals.
Why is shorting not consistent with long-term thinking? You can think a company or industry will decline over a long-term horizon, just as much as you can think it will grow. It seems like the symmetry of being able to be either short or long on a company is a useful part of the market signal.
I'm also not sure "hold for 6 months" is particularly useful. A lot of people are already investing on that timeline today and it hasn't solved the problem. Also, there are enough investors on aggregate that there would still be a lot of buy/sell activity every day even with that model.
Something that might be kind of interesting is if there were a short trading window every ~5 years or something. Then nobody is trading at all for years, the company can focus completely on the long-term vision and only have to check in and worry about the public perception of the work for a short period of time every few years.
Apologies, shorting-bans isn't necessarily a long-term view rule, just an example of something they could do around constraints on trading, not necessarily something they should do, just I expected some kind of trading rules to fix the real problem, which in my opinion is investor pressure, not management short-sightedness.
The rules I suggested aren't necessarily good rules, just random examples. That is, to me the most powerful driver for short term thinking isn't managerial in nature, it's investor in nature. That is, it's the short term fluctuations in market value as investor reactions to events or goals that have nothing to do with the company's bottom line or long term goals, etc. But if essentially random forces are affecting the value of your company, there will exist pressure on management to respond to that pressure. So to me the real fix is some set of rules constraining investor behavior with regards to how the stock is traded, not some nebulous honor-code among CEOs. I am not sure what the rules should be, I just picked random rules out of my butt. But I think there should be some trading constraints: if you truly want to incentivize long term vision, you have to remove the short term pressures.
Like your suggestion for a trading window every 5 years. I have no idea how well that would work, but it seems reasonable, and is the sort of thing I expected for the site, but they seem not to have anything like that in mind. Which to me means that have entirely missed the mark.
Apologies, shorting-bans isn't necessarily a long-term view rule, just an example of something they could do around constraints on trading, not necessarily something they should do, just I expected some kind of trading rules to fix the real problem, which in my opinion is investor pressure, not management short-sightedness.
With all respect to Eric, I strongly believe the concept of forcing "long-term investment" is ultimately a scam.
At the end of the day, it's fundamentally a blank check for management to misbehave -- to misspend money, pursue pet projects rather than real business goals, and have nobody to tell them no.
There is nothing inherently short-term about the stock market -- this is a myth that keeps getting repeated but has zero substance. Short-term changes in supply and demand add changes to prices, but it's not like anything's 10x off of the value a company is expected to produce -- the net present value of future cash flows.
But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.
> But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.
Is it even possible to hold management accountable for anything at all? Personally, I think executive compensation is the real culprit.
I've tried to think of ways to put a cap on compensation but I can't think of any way especially since the management of one company is on the board of another and they are all in it together. Also something I didn't know until recently: board members get paid! How is that not the dumbest thing in the world, I will never know... Personally, I think board members in public companies should get ZERO compensation, no travel allowance, no perks. They own stock, don't they? but I digress.
Is there a way to cap executive compensation to a multiplier of the lowest salary paid by the company? like 10x or 50x something? Like if the lowest pay is USD 15 per hour or USD 15 * 2000 = USD 30k then the highest executive compensation (including stock grants, bonuses etc) may not exceed USD 30k * 50 = USD 1.5M which isn't too bad.
Why would you want to put a cap on management compensation?
The comp for the highest level of management essentially comes out of the same pool of money as the returns to shareholders. If shareholders want to pay the CEO lots of money, let them. It's their money.
Especially, C-level executive's pay doesn't really come out of the same pot of money as low level employees' pay. The pay for cashiers at Walmart is more dependent on what Target or McDonald's pay their cashiers than on how much money the CEOs make.
Thanks to outsourcing jobs to third parties capping exec pay at some multiple of lowest employee pay doesn't make much sense. Many companies don't directly employ their security guards for example, but pay a third party company.
As for board members: they should be compensated however much they can negotiate for.
If I were to own a company, I would have opinions on how much the board members should be compensated. But who am I to tell other people how much to pay for services?
In any case, I don't really understand how capping compensation would help hold management to account? I can see an argument for how management should mostly be paid in eg stock, so that their incentives are aligned properly. But I don't think that's what you wanted to get at?
> Is it even possible to hold management accountable for anything at all?
Of course, it's the way things work now. And it has nothing to do with compensation.
Employees are held accountable by management, and are fired when underperforming.
Management is held accountable by the board -- and is similarly fired when underperforming. CEO's are let go all the time.
And the board is held accountable to shareholders -- as owners change or demand new policies, board composition changes accordingly.
Of course if the CEO/founder owns more than 50% of voting shares then the board is more advisory than anything else, but that's the exception -- and it's simply what you get from being the owner.
That’s what it says on paper but there is a lot written about management’s capture of the levers of control. They sit on the boards, set each others salaries, and recommend each other for their boards. Shares are automatically voted the way the board chooses unless specifically voted the other way. Institutional investors typically have a hands-off attitude toward corporate governance issues leaving activists as the only ones who can hold management’s feet to the fire.
We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.
I know that doesn’t sound super sexy but we believe this is a high-leverage point for reforms
We will have more to say on reforms that relate to reading in the future, but we don’t limit the ability of “tourists” to trade in and out of stocks as normal.
What do you define as long term? At some point, the best answer for longevity is for a company not to exist at all, given that the purpose of most companies is extraction, or some sort.
Yes, we have the power to delist companies, although I hope it never comes to that.
Shareholders would have their ownership protected in that scenario (as they still own common shares), same as any other company who was delisted from an exchange
Yes, all of our standards are enforceable, that’s part of the responsibility of being an SRO. When a company makes promises as part of listing on LTSE, the public can believe them
Everything we do is completely transparent. If a company deliberately violates the policies they have publicly adopted, not only would they be delisted they would likely be committing securities fraud. I think it's likely you'd hear about it.
You imply rather than state directly that you fear our regulatory decisions would be influenced by our commercial interests, so just to address that part, we have an extensive set of checks and balances in our own corporate structure that double-buffer these decisions.
Thank you. I thought I was being direct but I’ll try to be more so.
Just to be clear, I don’t doubt you personally in any way, it’s more that I think it’s an enormously difficult problem to get a group of people to take action on something when they will receive a lot of money by NOT taking that action.
More specifically: companies are already supposed to take the wishes of long-term shareholders into account, and boards are supposed to enforce this, yet in practice this doesn’t happen much because, well, incentives dictate otherwise.
Can you share some of the checks and balances that would stop the exchange itself acting in its controllers own short-term self-interest?
What happens to the shares of a company that someone buys on this exchange if it is delisted? Do they have to then somehow sell them on another exchange? Wouldn't delisting harm the value of those shares, if they can be sold elsewhere? Wouldn't that cause serious financial harm to holders of those shares, who bought things on the LTSE expecting long term viability?
I think part of the idea is between reporting requirements & articulated statements about what goes into that reporting, by failing to report or failing to live up to those goals, you get to use the existing teeth (and defenses) associated with investment fraud. For any constructable issue rather than just purely quarterly financials, you can hold the company to account, and protect decisions that might be for some new goal in their bylaws [but also might appear against an immediate short-term financial gain].
My insight from watching Eric give a talk about the exchange:
What does that mean concretely? Will earnings reports still be quarterly? I guess I'm trying to figure out why the exchange has to do anything here. There's plenty of investors and companies that think long term with BRK and its investors being the most prominent.
Digging a bit more, on the investor side, there are value investors who look for solid, if unspectacular businesses at a price point and buy and hold over long periods of time.
On the company side, there are exceptional founder run businesses like Amazon, FB etc. that don't care very much what things look like in the short term (Bezos claims he's willing to be misunderstood for long periods of time for example).
I’m not quite sure how to answer your question. Clearly there are long-term investors and companies in today’s markets. I think there would be more of them if they had a platform conducive to their philosophy.
>Clearly there are long-term investors and companies in today’s markets.
That's not really an answer to the question - so how do you define long-term, and how do you take reports? Are they still quarterly reports? Or are the reports longer-term? How do companies prove they're long-term to interact with your platform?
You haven't really talked about the concrete definitions or parameters around 'long-term' in this thread. Please do, it would be nice.
Quarterly reporting is an SEC requirement, so we don't affect that. We do require certain additional reports be filed on an annual basis.
Companies prove their long term by adopting policies responsible to our long-term principles. The way this works is spelled out in a lot of detail both on our website and in our regulatory filings. Here's more of a layman's overview: https://longtermstockexchange.com/static/principals_for_lt_s...
It seems that perhaps you have some idea of what these perverse outcomes look like.
D) seems to be "a company reinvests in its employees (training, etc)
and
E) is someethign like "a Company rewards employees and stakeholders for long-term company success."
What does the perverse scenario look like for you?
I legitimately don't have any in mind. I just have zero faith in humanity, and assume loopholes will be exploited to follow the letter of the law, but not the intent. I was wondering if they've thought about that and what his thoughts were about it.
Edit; The only one I can think of, when it comes to rewarding employees is what if a company uses contractors (or gig workers if you use those words), and therefore not defined as employees?
You don't even need to say it like that: you have zero faith in humanity. You should have some faith, we've performed reasonably okay over time. The problem is thus: over a long enough time period, given any individual's inert desire to benefit from something, it will be attempted if not by one individual, then by another. Wanting to define, in law, through enforcement, terms of ethical conduct and its breach is reasonable and necessary herein where capital is involved.
I'd like to see a market for solely worker-owned cooperatives, in which stock dissolves over a fixed time-period, 5 years(restaurant)-500 years(asteroid mining). "Dissolve" being essentially buybacks that occur, bending based on performance. Then again, I'd like to see capital dissolving, normalizing, over 100 years, giving capital the property of entropy, redistributing it all, but very slowly over the span of a bit more than a human lifetime. This capital would be more valuable than any world currency.
In the SEC filing they say that companies will be required to issue long term policy documents and that their progress should be measured in Years or Decades and with long term compensation plans. The compensation piece seems like the most concrete requirement given that most companies will say they have long term plans. But those companies also reward executives based on stock price and earnings in a quarterly/yearly intervals, not decades.
We don't allow companies to list if all they have are vague plans. Each policy requires companies to make structural, externally-verifiable commitments.
I noticed there doesn't appear to be tangible answers to this anywhere (including in the reply you got to your comment). Curious to pitch a supposed long-term stock exchange without anything meaningful to lure listings to it other than vapor statements.
I'd bet it's because they can't set any strict upfront requirements. They won't be able to get the listings they need if they do it, the interest won't be there. So most of what they're going to try to do is espouse the mission goals, hoping over time they can gradually implement those controls.
Agreed. Just like everything else, the ideas hold more power based on who they are coming from. Eric is a stellar individual with a trail of success behind him - and I'm not taking anything away from him with this comment, but if I were to go to a set of worthy investors and corporations pitching this idea - I'd be laughed out of the room as naive.
I don't know if this is as true as you think. First of all, I've been laughed out of a lot of rooms for pitching this idea. Hundreds, by now.
Further, although many VC's are indeed herd animals as you seem to suggest, there are a few bold ones who genuinely hunt for new and radical ideas and would be willing to back a first-time founder - if you're willing to do the work.
Thanks for the response Eric. My point is about the audacity of the idea. Specifically, to open a new financial market place of the magnitude it would take to be viable, one would need - 1. significant experience in the space to understand the nuances, what's working, what's broken, etc. 2. Sizable investments and talent for operations (scale, uptime, compliance, etc.), 3. A well thought through G2M strategy (including derivatives, indices, options, day trading, HFT, etc.), 4. A broker network, 5. A true, unambiguous differentiator that is viable, measurable, enforceable, and timely.
I see this criticism a lot in the various threads, but I don't really understand it. As a stock exchange, we are strictly regulated. We aren't allowed to make vague claims that are not backed up by regulatory filings, all of which are publicly available both on our website and at the SEC. For example (from least to most detailed):
Given that companies like Uber, which are not only unprofitable but don't even have a clear path to profitability at any time horizon, trade at fairly high valuations, what's the basis for the belief that investors are irrationally focused on short-term results? Should Uber actually trade at higher valuations than it does today? Why isn't some rational subset of investors capitalizing on this opportunity?
I don’t think multiples are the issue. The question is: are companies set up to support a philology of long-term decision making? Talk to almost any middle manager in any public company in America if you are confused about whether this is the common case today
If investors are not irrational about the long term, then I don't see how there can be a problem. Prices will correctly reflect long-term expectations, and managers who are paid in options/hold equity will face the right set of incentives. If managers focus on the short term it's probably because it maximizes long-term value.
It's kind of interesting to think about growth profiles over time. To grow over some long term span, like say 10 or 20 years, did the growth all take place in the last 90% of the interval or evenly throughout. I guess the premise of a company growing throughout all the short intervals across a long span of time is a good way to know at least something will be there down the road that's not too far off the mark from where you'd like to be with your investments. I'm trying to think of the reconciliation of short term vision with any wisdom contained therein with respect to long term gains.
Companies care about many things other than mere multiples. And there are many factors that influence multiples. So I think it's accurate to say that companies consider many factors when deciding where and how to list.
This might not be a great comparison, however, when Japan was ascendant some of that might was attributed to their “long-view”. Companies on the nikkei were government backed and didn’t have the same quarterly results demands seen in other exchanges... and that was proven right to about the mid-90s. Then it was revealed that those companies on occasion invested in areas they had no expertise or had poor returns. Not that the current system of chasing quarterly results is good, but how is the Japanese experience avoided?
As with everything, there is a delicate balance to be maintained. Toyota is an interesting example from the Japanese context. Luckily (?) things are today so out of whack that I don't think we have to worry about overcorrecting - for now.
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[ 5.5 ms ] story [ 329 ms ] threadWhere does this pressure come from? The board? Can't you appoint a board that is long-term friendly? Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA? Shareholders? Shareholders agree to all sorts of craziness if they like your company (see voting structure of Palantir, Facebook, etc.)
Maybe others can elaborate on what problem is being solved here.
If PayPal et al. had retained profits in the business for a long term goal, a substantial number of innovate companies couldn't have formed.
The more nuanced problem is likely that short-term and long-term shareholders' goals are mutually exclusive. That is, there is a rarely a strategy that's optimal for both.
Coupled with the fact that some businesses (apps!) favor short-term strategies, while others (biotech!) favor long-term strategies.
I'm not sure that's a benefit if they then destroy those businesses too.
If capital is tied up in a failing business that's pursuing a "long term strategy," then it's not freed for new businesses.
SpaceX and Tesla (to name two HN faves) probably wouldn't exist had PayPal retained more of its capital.
Wait -- the bond market won't lend to you cause they don't trust your ability to generate that return for the next 20 years? Go to the junk bond market -- they'll lend to you. In fact here's an idea go to the junk bonk market, and borrow money to take your company private -- out of the hands of those grubby short term shareholders.
I mostly agree that it's better than other system that we've tried in the past (although I'd argue that the more highly regulated capitalism with higher taxation levels of the 60s-80s was slightly better than our current (post-90s) deregulated system).
But I'm a bit more ambitious than you. I don't think we should rest on our laurels and accept the known shortcomings. I think we can do better, and I think we should actively look at doing so.
I feel like maximising shareholder value is a mediocre solution to the problem introduced by the creation of a non-owner managerial class. I'm not entirely sure what the best solution to the problem is, but I'm convinced that we need a better one than the one we have.
This isn’t how the LTSE works but it would be awesome if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years. Combined this with a minimum holding period, and I dare people to bid $300+ for Tesla stock :)
Why should they be on a separate exchange?
What I'm suggesting is an exchange where the dividend is a fixed % of their cashflows. Let's say it's 1%. If their cashflow is 1 billion, then 1% of it goes to their shareholders. If it doubles the next year, then 1% of that 2 billion goes to the shareholders.
Combine this with a minimum holding period (ie 1 year), and you've basically now made the stock price equate to its fundamentals. ie how much cashflow it's generating in the future. If investors think it'll go up, they'll bid the price up. not because they want to sell it to a greater fool.
wouldn't this be roughly the same as bond markets?
The development of modern financial capitalism is important and fascinating. These structures that we take for granted -- tradeable claims on assets, separation of ownership and management, perpetual life corporations, etc. -- all came about to solve particular problems.
Personally I don't foresee the LTSE succeeding, but I'm happy to see people try to innovate.
Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition https://www.amazon.com/dp/B017J5HBMS/ref=cm_sw_r_cp_api_r.pw...
Devil Take the Hindmost: A History of Financial Speculation https://www.amazon.com/dp/0452281806/ref=cm_sw_r_cp_api_i_.a...
A History of Interest Rates, Fourth Edition (Wiley Finance) https://www.amazon.com/dp/0471732834/ref=cm_sw_r_cp_api_i_-c...
A Splendid Exchange: How Trade Shaped the World https://www.amazon.com/dp/0802144160/ref=cm_sw_r_cp_api_i_Hg...
I would probably invest in a "Vanguard Long-Term Growth Fund," and I would assume that companies that got themselves on such a fund would want to stay there.
Perhaps the LTSE includes new rules for things such as how often stocks can be traded, but this isn't evident from that blog post, or the first one referenced in the post.
The price of the share has to be adjusted at the dividend ex date to reflect the drop of value induced by the dividend payout. If not every holder of the share class benefited from it, then this is obviously unfair.
Now if you are talking about different share classes, then they would have to either be issued to current shareholders (e.g as rights issuance, in which case every shareholder could have them, long term or not), or publicly traded (same thing basically, everyone could have them, long term or not), or privately traded. In that last case, I would not really say this is "for long term investors", it's more a matter of private equity / politics / governance. Don't expect to enter that kind of deal unless you are a _big_ institutional investor.
General discussion of the concept in France. http://jpkoning.blogspot.com/2016/09/the-french-shareholder-...
> Despite ensuing controversy in the French legislature over the fairness of elevating one class of shareholder above the rest, the ability to provide prime de fidélité was enshrined in French law in 1994, with several limits.
So indeed they provide you with a different share class. What is amazing though is that they have what look like an automated process to convert your shares from public to registered (private with fidelity bonus).
Reselling these shares is not really explained in the page though. They seem to imply that your broker will swap them for regular shares that you can then sell on the market.
It's extremely difficult/rare to find investors who will just sit back and trust the CEO run the company as they see fit, particularly in a world where "unicorns" are going from zero to $billions in a few years. It happens occasionally, but only in the case of extreme outlier companies where the company is already a rocketship and thus the CEO/has already proven themselves - e.g., Apple/Jobs-post-mid-2000s, Facebook/Zuckerberg.
Whilst plenty of companies could reach huge scale over a longer period of time, it can be difficult for investors/outsiders (and indeed the management themselves) to know whether their company really is a slow-building long-term winner vs a zombie.
Perhaps what the LTSE is doing is attracting investors who are willing to be patient over a slow/long-term build, but to also work with the companies to ensure they really are on a path to long-term success and not in zombie mode.
People say companies pursue short-term gains but in reality they just mean they pursue things they disagree with. And herein lies the dirty secret: professional investors aren't short-sighted, they just don't value the things you do because (shocker) the average Joe doesn't really understand how to create shareholder value.
Survivorship bias?
> the whole premise here is that investor behavior prevents [survivorship] bias
WTF? How the heck is some "investor behavior" supposed to prevent you (or I, or anybody) from succumbing to a common human mistake made when analyzing data and discussing it here in the comments-section?
> You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.
Back up: You're using a straw-man argument, a false version created out of black-and-white absolutes, rather than trends and high probabilities.
___________
Consider this fictional conversation:
A: "Playing the lottery is a sucker's game, you're almost guaranteed to go bankrupt."
B: "But look! These people bought a lot of tickets and won! They're multi-millionaires now!"
A: "That's survivorship bias. You're not considering the huge numbers of not-so-notable people who lost money instead."
B: "No it's a massive glaring contradiction to your core premise! You can't brush it off as bias!"
Both companies you mentioned have had particular conditions that allowed them to be long-term focused. For Amazon it was that they achieved huge growth and cash flow from very early in their history and so Bezos has been able to call the shots. For Tesla it was that Musk was already rich and could spend several years investing his own money before needing outside investment. (And by the way, just look at the crap Musk has to deal with from a major segment of the investor community as he seeks to pursue a bold long term vision; and he’s one of the greatest force-of-personality founders ever).
These conditions don’t apply to unproven founders relying wholly on outside investment, working on opportunities that may not yield rapid growth and cash flow in the short/medium-term.
In my very limited experience, it is the _company_ which must accept all sorts of craziness from the shareholders rather than the other way around. Which is also how it stands officially...
> Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA?
Not clear at all that they would, if individual officers expect to have to justify short-term-losses.
If you really do believe it is investors driving short term outlooks, a different exchange wont make a difference to how many investors buy the stock.
Imposing strong controls on corporate management is one of the most important thing that shareholders can do. This might take the form of independent boards, which aren't handpicked by the CEO. Or the removal of poison pills (which raises the threat of a hostile takeover for underperforming companies). But most important of all is the existence of transparent, consistent, regularly evaluated metrics. That means quarterly earnings targets.
Like any job, CEOs need consistent feedback to keep their incentive aligned with those who employ them (shareholders). Management has shown time and time again, that when monitoring is weakened, they go off the reservation and destroy shareholder value. The good thing about earnings is that it's they're easy-to-measure, hard-to-fake tangible proof of continuing performance. In contrast stories about "long-term value" or intangible promises of future rewards are usually BS used to justify extravagant empire building while the CEO uses the company's balance sheet as his personal piggy bank.
Lest anyone think that evil Wall Street shareholders are hobbling visionary CEOs, observe the rare cases when management does prove its credibility. Prime example is Amazon, which time and time again has scarified short-term earnings for long-term development. And nobody could possibly claim that it's punished by Wall Street for this. The difference is that unlike 99% of CEOs, Bezos has conclusively proven his ability and alignment with Amazon shareholders.
Before he had the track record of long term development (only born from long term efforts) he knew how to speak Wall Street and had a track record on Wall Street.
Most CEO’s will never be capitalized like him for long term empire building so it’s hard to say there couldn’t be more Amazon sized successes out there if Capital was more accessible for longer term visions.
It seems like a fact-based analogy. 'A group have been restrained to "territory", but a member has broken that restraint'. There doesn't seem inherently to be a judgement as to the restraint or the rogue being right/wrong.
I'd be interested in why you felt the usage was beyond the pale sufficiently that it needed to be reined in? The concept of territorial reservations doesn't appear to me to denigrate any group particularly; maybe I'm wrong in that?
"The issue with 'off the reservation' and similar phrases is that these things are said without any thought. They become a part of the common vernacular. Freely they move from mind to mind, mouth to mouth. Maybe the meaning of these sorts of phrases never should have been the issue. Maybe living lives without thinking about what we say and do is of greater concern."
https://www.npr.org/sections/codeswitch/2014/06/29/326690947...
But we should educate them on why the phrase is one that should be avoided.
> “Opening the kimono” implies a coyness and sensuality that conjures up images of submissive Asian women reluctantly willing to show you their most vulnerable side. I understand why someone would use it just from the shock value alone. It took the wind out of me when I read it.
https://medium.com/@brunchandbudget/opening-the-kimono-on-op...
If they are said without any thought or connotation then is there really any slight against whatever group is the origin of the phrase?
He could have just has easily said "off in left field" which is arguably a slight against leftists and commies but has so long been a colloquialism that it has lost that connotation.
But yeah, "off in left field" is a baseball thing; no one is harmed or offended by that— even if you do apply it to politics or use it in a political context, as the WP article briefly mentions, politics are something you choose, not your cultural identity, so it really isn't the same thing at all: https://en.wikipedia.org/wiki/Out_of_left_field
Another interesting case is the phrase "balls to the wall" which has a harmless origin with aeronautics, but is spicy enough on account of an obvious alternative interpretation that it isn't used in polite company.
Off in left field is a baseball analogy and has nothing to do with people left of center politically.
or is "derail" also a phrase that you are against because native americans used to literally derail trains back in the day?
The phrase has the trappings of genocide baked in, and people who have learned of the history of their ancestors are going to be reminded of that whenever they hear it. Even if you are not thinking of any of that, the term is primarily used to indicate someone doing something odd/crazy/wrong, which is fundamentally implying that any indigenous person who has done so is odd/crazy/wrong.
I think most people understand that its use in everyday vernacular is not usually intended to be racially charged, but that doesn't mean that people shouldn't be educated on the phrase and try to avoid using it. There are lots of ways to express ideas, and it's probably fine if we don't use the ones that are fundamentally tied to racist connotations, especially when indigenous people in many countries (US, Canada, Australia, among others) still suffer from systemic policies and actions that leave them disadvantaged to this day. (Casinos on reservations are a band-aid and do not solve the fundamental problems, for example. In America only 200ish of nearly 600 tribes run casinos on their land, and of those 200ish, less than half pay out per capita, and only a handful make significant money from their casinos - the payout is less than 10k/yr per person for the vast majority - less than the federal minimum wage assuming a 40 hour workweek)
Cliff notes: Just because you don't see one doesn't mean it isn't there and that the people that have lived their lives impacted by it will not see one and be reminded of the genocide their ancestors faced and the results of ongoing systemic racism today. It's a bad phrase. We should try not to use it.
Frankly having people like yourself chime in at every juncture to tell other people they are perpetuating racism is cheapening the actual historical impact of these events. If you care about the people you claim to defend then do something to help them.
Please keep in mind the GP/GGP comment to this was folded for being offtopic.
That's an interesting take, and not one that I think you will find in common with experts on the subject.
>If you care about the people you claim to defend then do something to help them.
I donate my time, money, and other resources to a variety of causes related to helping disadvantaged groups. I might largely be wasting my time in attempting to educate people on the internet, but it doesn't mean that I do not do anything else.
Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful? It's a phrase that is quite strictly Othering in nature. Not only can it be hurtful to those that have lived with the repercussions, but it also helps reinforce the Othering mindset in those who did not.
Many of these "experts" typically use outrage to justify their continued employment. Most of them come off as genuinely deranged to most of the people I know, so this isn't just a me thing.
>I might largely be wasting my time in attempting to educate people on the internet
You're not educating people so much as finding chances to belittle them.
>Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful?
You're trying to tell someone they are racist while not holding any racist opinion but for saying magic words. This is nonsensical. If black people call each other "the n word" then a word and its historical meaning and modern meanings are not necessarily linked to each other.
More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.
I have explicitly stated in multiple places that I do not believe people are racist or have any sort of malicious intent, and are likely unaware of the connotations. You can see multiple posts in this thread where I have stated this. I would, however, say that in an ideal world we all strive to be anti-racist, rather than just not racist.
>More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.
For the disenfranchised groups, sure. For everyone else? Not so much.
I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it. Most of what it says is arguing against positions that I have not held at any point, and is putting words in my mouth. I apologize, but I do not believe I can engage further in a productive manner here.
You're mincing words. If the people are above reproach then what they are doing is probably also above reproach. What you are saying is effectively "I'm not saying they or their actions are racist, but they actually are."
>For the disenfranchised groups, sure. For everyone else? Not so much.
This doesn't make any sense. The disenfranchised groups need to be empowered; everyone else doesn't need to be, they are already empowered (by your own logic). So if this works for the disenfranchised groups that should be enough.
>I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it.
I'm trying to point out your position isn't really consistent. If you want to help people then you shouldn't be trying to drag other people down. The points I am making are meant to show that, regardless of what you say, what you are doing "works" by trying to ascribe racism to people that are not exhibiting racism.
In some specific cases language use guides thought, but more commonly language is dictated by people's goals and the existing nature of reality. Language did not cause the world to exist.
Median doesn't seem like the right metric. If you measured VC by median outcome I'm sure it looks like they always fail.
As an investor, I care more about the total (sum of average) returns of mergers, not the median. Just like in venture capital (where the median investment is clearly negative), the total return matters and is driven by the large returns on success.
I'd still be happy to invest in Berkshire Hathaway in 1955 even if you told me that their median merger over the next 60 years would be value destroying (so long as the average would turn out the way it has).
See page 111 of this survey paper: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.15.2.103
I found these two URLs helpful in understanding how LTSE sees its role:
https://www.ltse.com/faq
> Q. Would companies that list on the Long-Term Stock Exchange report quarterly earnings?
> A. Yes. By law, U.S. public companies are required to report earnings at least quarterly. The difference is that the listing standards of the Long-Term Stock Exchange are designed to change the narrative for success, so that the quarterly results are viewed in context as part of a long-term narrative.
https://longtermstockexchange.com/listings/principles/
> Long-term focused companies should consider a broader group of stakeholders and the critical role they play in one another’s success.
The focus seems to be less on constraints on traders and trading, and more on policies that companies listed on the exchange must fulfill. So the LTSE doesn't have to be the exclusive venue for trading and a company can be dual-listed on LTSE and another exchange — the mere fact that the company is listed on the LTSE gives you a crucial piece of information.
> Operating principles: In an earlier SEC filing, LTSE said that its corporate governance rules might include: increased voting rights for shareholders who hold company stock for long periods of time, restrictions on offering short-term incentives to executives, disclosure of impact of any stock buybacks, and requiring companies to have a board-level long-term product and strategy committee.
https://en.wikipedia.org/wiki/Long-Term_Stock_Exchange
Presumably that could mean requirements on board memberships, dividend levels, types of employment perhaps? I find it a bit hard to see what stipulations they would have that aren't just good governance.
I think in practice this means that no one will use this exchange...
I think most of the approaches you mentioned wouldn't hold up for a large stock exchange because some off-platform trading site would spring up to fill the gaps. For example, you have a minimum holding period, but off-platform you can "sell" your shares at the current market price, then transfer them for free once the holding period ends. Or something.
I think you have to change the way the shares themselves work somehow (or how dividends work, etc). I'm not sure, seems like a hard problem.
Modern executives have incredible pressure to hit quarterly numbers and the ones that provide value in the long term are the ones that can effectively ignore this pressure.
Short term pressure also forces firms to play accounting games like taking big goodwill impairment losses in a down quarter, so they don't need to perform a writeoff in subsequent quarters.
The thing missing from this article is: What does this actually mean? When will companies start listing? Who will start listing? How do companies list? What are you offering? etc.
lmk when this materializes I guess.
Based on the “long term”, I’m guessing the core concept is no quarterly reporting, so companies can focus on long term initiatives.
However, how do they explain Amazon, who reinvested what would be their profits for over a decade, to continue expanding their business and build the massive Walmart juggernaut? All Bezos had to do was describe the strategy to the market, expand quarterly sales, and many investors were patient over the years.
However, an exception to the rule is not the rule.
But I'm not sure why you would want to encourage margining when you are against volatility? The capital for the margin loan has to come from somewhere too.
So instead of person A putting up 5$ and borrowing 95$ to own 100$ in stock, and person B lending those 95$; it might be better for volatility for person A to own 5$ in stock and B to own 95$ in stock?
I am not sure.
For full disclosure: my investment strategy involves margining.
(Btw, I do think that 5% equity on houses is bad. It's mostly a function of land prices going up so much.)
Corporate governance is eff'd, and does promote short-term shenanigans, but technology that enables shareholder governance is the solution. Not just avoiding the price discovery process.
Well I woke up this morning and got myself a beer!
What is it about the venue that makes it special? It seems that once an investor thinks a company has some desired characteristic, all they'd care about is where to get the shares as cheaply as possible.
Much like as an investor you'd think twice before purchasing an OTCBB share today, or perhaps 30 years ago pay more attention to the difference in listing requirements between Nasdaq and NYSE, I think that's what's intended here
If you had to hold a stock for a long amount of time before selling it, you would find it very hard to buy or sell stock.
It turns out that is one of the most important things to do in modern, capital intensive, economies.
It also means people can invest for shorter periods and that means more capital is available for investment. This has a double bonus where it reduces the risk of investments again making more capital available...
Imagine if you're a would be investor. You're money is available now to invest. So you want the market to be open to let you buy. Otherwise that cash is just sat there waiting. Similarly, you want to invest all your money. But if you know you won't be able to get it back for X period of time then you can't can you? You might not even know how long you can invest for: I might reasonable expect not to need some cash till Christmas time but if I lose my job tomorrow I want it now please!
So a market where you can buy and sell rapidly makes you more able and more likely to invest. That's good for you as you can use spare cash productively and make a profit while still being safe if you suddenly have a change in circumstances. It's also it's good for the company you're investing in as they can raise capital quickly and there is more capital available. And all of this means more growth and lower costs and that means more tax money for social services and more jobs for other workers etc.
The analysis for the people receiving the investment is similar but a bit more complex because the company doesn't just get investment, it also get's information: a rising share price tells you you should expand, high prices in general indicate a great time to start new businesses, a competitor whose share price falls while your one rises has issues and might be open to a merger\takeover etc.
Compare football (ie soccer) trading windows. Player performance within a match might be like daily performance of a company.
I am a long term investor. Long term investors like me still need to buy or sell stock occasionally, even if only to live out their retirement eventually.
There's no good reason to assume that for every long term who wants to buy or sell on a particular date, there will be another long term investor on the other side of the deal.
So a special kind of short term investor, called a market maker, jumps in. Market makers typically hold a small amount of inventory and offer to buy or sell stock.
Market makers allow your grandma to sell stock any day of the week without worrying too much about timing.
See https://en.wikipedia.org/wiki/Market_maker
There are other kinds of short term holders of shares. But market makers are probably the most obviously useful to long term investors.
Or put another way ... Adam Smith > Milton Friedman
I cannot wait to see where this goes and the mechanics LTSE puts in place to help reward long term thinking and long term holders
Why is the default that companies are "punished" for long-term thinking?
I'd bet that there are far more cases of long-term investors "punished" in the public markets by short-term thinking executives than vice versa.
How are they defining long-term thinking? Is Walmart thinking long-term? Is Uber?
edit links: - https://captable.io - https://startuprunway.io - https://hiringplan.io - https://fast409a.io - https://startupdisclosure.io - https://notegenie.io
it feels like the third page in the godaddy checkout flow where it's like 'maybe you need our wordpress, email, and VPS hosting in order to launch your website'
also feels like a data grab. traditional exchanges don't collect this stuff, and the SEC doesn't collect most of it.
I was a bit disappointed with the pitch; sure Carta is useful but I had hoped LTSE was a place to do some really revolutionary stuff. It seems like that aspect of the company is a ways off and from my limited understanding, it doesn’t seem like today’s announcement makes it tangibly different than NYSE.
I’m neither a banker nor a major investor so I’m really curious to understand how they see this as a paradigm shift. For now it looks like a stock exchange started by someone I really admire but not much else.
Tax wealth for all I care. But don't tax transactions.
(Btw taxing transactions would actually make financial speculation more profitable. Because bid/ask spreads would become wider and prices more volatile.)
Minimum holds are very different from trade taxes. (The latter is stupid for a variety of reasons.) Minimum holds would make market making more profitable.
Market makers are good for widows and orphans. You don't want your grandma to have to be careful with the day of the week or time of the day when she sells her stocks.
See https://en.wikipedia.org/wiki/Market_maker
Update: I found the Sign In/Sign Up URL: https://account.ltse.com/
I fail to see how this will have any meaningful effect on "long term vision", if they still allow your stock price to be dumped at the first sign of trouble, or allow people to bet against your company when some irrelevant bad news hits, or no one else sees value when you decide to deepen your spend on R&D for some long term plan. If people freak out, or think they can profit off of your lack of current obvious value, the you are still going to have short term fluctuations that you will feel pressured to address.
The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors. Shareholders are not gonna understand your vision every time you decide to engage in a long term strategic shift in priorities, so they will react when they find out, and that reaction can swiftly damage a company's value. If shareholders can still trade over short-terms, then you will still have large scale short-term fluctuations that CEOs will be forced to address, as more and more potential buyers will be influenced by the low price of a stock caused by other skittish short-term thinking investors.
The problem is with investors in stocks, not with the companies unwillingness to think long term. To make such an exchange work, you have to have clever trading rules in place to force longer term thinking.
That would at least be an attempt. Though to be honest, (other people doing the) shorting is actually very good for the long term shareholder.
> The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors.
It's not that investors are short-termist. Far from it. See eg how shareholders react to Amazon or Tesla.
The problem is the principle-agent conflict: shareholders in general have a very hard time monitoring management. It is neigh impossible to tell a manager with a grand vision that will pay off in 20 years from a manager who burns capital on harebrained schemes for 20 years. Especially impossible to tell before those 20 years are up.
That's why investors are so keen on early and hard to fake signals. Returning cold hard cash to investors is one of those signals.
I'm also not sure "hold for 6 months" is particularly useful. A lot of people are already investing on that timeline today and it hasn't solved the problem. Also, there are enough investors on aggregate that there would still be a lot of buy/sell activity every day even with that model.
Something that might be kind of interesting is if there were a short trading window every ~5 years or something. Then nobody is trading at all for years, the company can focus completely on the long-term vision and only have to check in and worry about the public perception of the work for a short period of time every few years.
The rules I suggested aren't necessarily good rules, just random examples. That is, to me the most powerful driver for short term thinking isn't managerial in nature, it's investor in nature. That is, it's the short term fluctuations in market value as investor reactions to events or goals that have nothing to do with the company's bottom line or long term goals, etc. But if essentially random forces are affecting the value of your company, there will exist pressure on management to respond to that pressure. So to me the real fix is some set of rules constraining investor behavior with regards to how the stock is traded, not some nebulous honor-code among CEOs. I am not sure what the rules should be, I just picked random rules out of my butt. But I think there should be some trading constraints: if you truly want to incentivize long term vision, you have to remove the short term pressures.
Like your suggestion for a trading window every 5 years. I have no idea how well that would work, but it seems reasonable, and is the sort of thing I expected for the site, but they seem not to have anything like that in mind. Which to me means that have entirely missed the mark.
At the end of the day, it's fundamentally a blank check for management to misbehave -- to misspend money, pursue pet projects rather than real business goals, and have nobody to tell them no.
There is nothing inherently short-term about the stock market -- this is a myth that keeps getting repeated but has zero substance. Short-term changes in supply and demand add changes to prices, but it's not like anything's 10x off of the value a company is expected to produce -- the net present value of future cash flows.
But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.
Is it even possible to hold management accountable for anything at all? Personally, I think executive compensation is the real culprit.
I've tried to think of ways to put a cap on compensation but I can't think of any way especially since the management of one company is on the board of another and they are all in it together. Also something I didn't know until recently: board members get paid! How is that not the dumbest thing in the world, I will never know... Personally, I think board members in public companies should get ZERO compensation, no travel allowance, no perks. They own stock, don't they? but I digress.
Is there a way to cap executive compensation to a multiplier of the lowest salary paid by the company? like 10x or 50x something? Like if the lowest pay is USD 15 per hour or USD 15 * 2000 = USD 30k then the highest executive compensation (including stock grants, bonuses etc) may not exceed USD 30k * 50 = USD 1.5M which isn't too bad.
Is it possible to codify something like this?
The comp for the highest level of management essentially comes out of the same pool of money as the returns to shareholders. If shareholders want to pay the CEO lots of money, let them. It's their money.
Especially, C-level executive's pay doesn't really come out of the same pot of money as low level employees' pay. The pay for cashiers at Walmart is more dependent on what Target or McDonald's pay their cashiers than on how much money the CEOs make.
Thanks to outsourcing jobs to third parties capping exec pay at some multiple of lowest employee pay doesn't make much sense. Many companies don't directly employ their security guards for example, but pay a third party company.
As for board members: they should be compensated however much they can negotiate for.
If I were to own a company, I would have opinions on how much the board members should be compensated. But who am I to tell other people how much to pay for services?
And I don't think all board members necessarily own significant amount of shares. See also https://en.wikipedia.org/wiki/Independent_director
In any case, I don't really understand how capping compensation would help hold management to account? I can see an argument for how management should mostly be paid in eg stock, so that their incentives are aligned properly. But I don't think that's what you wanted to get at?
Of course, it's the way things work now. And it has nothing to do with compensation.
Employees are held accountable by management, and are fired when underperforming.
Management is held accountable by the board -- and is similarly fired when underperforming. CEO's are let go all the time.
And the board is held accountable to shareholders -- as owners change or demand new policies, board composition changes accordingly.
Of course if the CEO/founder owns more than 50% of voting shares then the board is more advisory than anything else, but that's the exception -- and it's simply what you get from being the owner.
Do you prevent day-trading or something similar?
I know that doesn’t sound super sexy but we believe this is a high-leverage point for reforms
We will have more to say on reforms that relate to reading in the future, but we don’t limit the ability of “tourists” to trade in and out of stocks as normal.
Yes, we believe in the role of long-term shareholders in corporate governance
How will you handle companies that eventually go against the required guidelines?
Could a company become permanently unlisted? And how would that affect any shareholders of the company who purchased through LTSE?
Shareholders would have their ownership protected in that scenario (as they still own common shares), same as any other company who was delisted from an exchange
I've heard many a company say one thing and act another. How will this be different? Will delisting be the repercussion of short termism?
Can you provide any specific examples of standards that could be enforced, and how?
How can investors be sure this company really would be delisted, even if it’s the company that makes LTSE the most money?
You imply rather than state directly that you fear our regulatory decisions would be influenced by our commercial interests, so just to address that part, we have an extensive set of checks and balances in our own corporate structure that double-buffer these decisions.
Just to be clear, I don’t doubt you personally in any way, it’s more that I think it’s an enormously difficult problem to get a group of people to take action on something when they will receive a lot of money by NOT taking that action.
More specifically: companies are already supposed to take the wishes of long-term shareholders into account, and boards are supposed to enforce this, yet in practice this doesn’t happen much because, well, incentives dictate otherwise.
Can you share some of the checks and balances that would stop the exchange itself acting in its controllers own short-term self-interest?
My insight from watching Eric give a talk about the exchange:
https://longnow.org/seminars/02020/feb/24/long-term-stock-ex...
Digging a bit more, on the investor side, there are value investors who look for solid, if unspectacular businesses at a price point and buy and hold over long periods of time.
On the company side, there are exceptional founder run businesses like Amazon, FB etc. that don't care very much what things look like in the short term (Bezos claims he's willing to be misunderstood for long periods of time for example).
That's not really an answer to the question - so how do you define long-term, and how do you take reports? Are they still quarterly reports? Or are the reports longer-term? How do companies prove they're long-term to interact with your platform?
You haven't really talked about the concrete definitions or parameters around 'long-term' in this thread. Please do, it would be nice.
Companies prove their long term by adopting policies responsible to our long-term principles. The way this works is spelled out in a lot of detail both on our website and in our regulatory filings. Here's more of a layman's overview: https://longtermstockexchange.com/static/principals_for_lt_s...
What does the perverse scenario look like for you?
Edit; The only one I can think of, when it comes to rewarding employees is what if a company uses contractors (or gig workers if you use those words), and therefore not defined as employees?
I'd like to see a market for solely worker-owned cooperatives, in which stock dissolves over a fixed time-period, 5 years(restaurant)-500 years(asteroid mining). "Dissolve" being essentially buybacks that occur, bending based on performance. Then again, I'd like to see capital dissolving, normalizing, over 100 years, giving capital the property of entropy, redistributing it all, but very slowly over the span of a bit more than a human lifetime. This capital would be more valuable than any world currency.
As the age-old principle goes: could you please name three?
Examples would help us understand the idea more thoroughly.
I noticed there doesn't appear to be tangible answers to this anywhere (including in the reply you got to your comment). Curious to pitch a supposed long-term stock exchange without anything meaningful to lure listings to it other than vapor statements.
I'd bet it's because they can't set any strict upfront requirements. They won't be able to get the listings they need if they do it, the interest won't be there. So most of what they're going to try to do is espouse the mission goals, hoping over time they can gradually implement those controls.
Further, although many VC's are indeed herd animals as you seem to suggest, there are a few bold ones who genuinely hunt for new and radical ideas and would be willing to back a first-time founder - if you're willing to do the work.
https://longtermstockexchange.com/listings https://www.sec.gov/rules/sro/ltse.htm https://longtermstockexchange.com/static/principals_for_lt_s... https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf https://www.sec.gov/rules/other/2018/long-term-stock-exchang...
If multiples aren't higher, why would a company list on your exchange versus on the public market?