The Long-Term Stock Exchange Comes to Life

I don't think I've ever bought a dividend share (just for the dividend) that has resulted in me getting an excellent yield. I'm personally not a big fan of purchasing stocks that fluctuate 10-20% up and downwards over the years while paying out, say, a 4% dividend. I'd rather put that money in a growth stock then.

"Anecdotes are easy to find on both sides. But ask yourself which is more likely -- that investors are dumb and managers are smart and investors should just trust managers to do the right thing? Or that investors are smart and need to hold managers accountable because it's the investors' own money at stake, while managers are smart too but always want a longer leash to do their own thing regardless of whether it's good for the company as a whole (e.g. spend more resources on cool side projects)?"

Given that most equity investors no longer make investment decisions and instead blindly buy indexes, there is an enormous opportunity for managers to make decisions that benefit them to the detriment of the investors.

There is absolutely no doubt that short term thinking is critical in the modern public company, and certainly examples of detrimental effects of it: at a simplistic level, when executive remuneration and bonuses depend on share prices with quarterly reviews, executive teams can (not do, this is not an absolutist position) focus on short term measures to boost their numbers - maybe they invest less in R&D, maybe they cut training budgets, maybe they fail to invest in long term growth options.

To your other point re Amazon (and really a large number of tech companies) - the multiples we see in these areas are Abberations that are hard to find historical economic rationalisations for. Take Tesla’s PE multiple, for example. At least Bezos laid out to everyone in his first shareholder letter that amazon was going to reinvest everything for pretty much forever. The bottom line: markets don’t always work as efficiently as we believe, and human psychology is the cause

> Another thought I keep coming back to is dividends. A proper investment gives returns without having to sell your stake. Lets provide incentives for companies to share profit rather than pump stock prices, then everyone can get excited about the right things.

the psychology behind dividends is not on your side here. dividends are viewed by knowledgeable investors as a company admitting they have run out of good ideas to generate even more profit (aka growth). while dividends can be issued for a host of reasons, the common case is that dividends are issued when reinvestment in the company would generate diminishing returns. typically returns diminish when the company is no longer in a high growth phase, so the company gives the money back to investors to find better returns elsewhere for their risk.

this is why dividends are largely issued by larger, mature companies rather than growing ones. you just won't get most companies to issue dividends because it hurts their growth potential.

you have to change structural incentives to make people care about the long-term. one fundamental reason for this is that many people on wall street want to get rich quick, so there's enormous pressure for companies to be that vehicle, in exchange for which, the companies get rich quick too via their stock price (underlying fundamentals be damned).

why do people care so much to get rich quick? (rhetorical question) i personally don't respect such people, but apparently plenty enough do that my opinion simply doesn't matter as they seem to get the prestige and power they seek. if we all genuinely respected ingenuity, determination, and the ability to make things (not shuffle money around), we wouldn't use income & wealth as a proxy for those things and we wouldn't have perverse incentives that make companies seek short-term pops (high-minded, i know).

I have experienced short-term thinking, driven by stock market expectations, very directly.

Working on a game, we had a build ready two weeks before the end of a quarter, but we weren't quite done. We had just a few minor tweaks that needed just two more weeks to complete, and we in fact delivered a complete game two weeks later...that was ignored, because it was more important to make their quarterly goal than to release a better product.

Turns out there were several games being developed that quarter, and ours was the only one to make it even close to under the deadline. But because they were doing quarterly reports, they were under tremendous pressure to release something, and so an inferior product was released.

Oh, and this was the era of physical cartridges. No updates possible. We put in a ton of extra work to make it perfect and they didn't care.

The international versions were shipped later and included the improved changes. If anyone is interested in seeing the difference, you can probably find the ROMs and a Game Boy Advance emulator: Check out the US release of "Tetris Worlds" and any of the international releases (all include English, but the three different international releases each included other languages as well).