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The Long-Term Stock Exchange Comes to Life

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Re: The Long-Term Stock Exchange Comes to Life

#181

Post by JumpCrisscross »

TheRealPomax wrote: post #157
JumpCrisscross wrote: post #14

Earlier quoted context omitted.

> it's intended to reward founders and long-term employees of startups by privileging them over the more retail class of investor It will just prioritize investors with the sense to stick their shares in an SPV ( e.g. an LLC or trust) and then sell the SPV with the premium voting rights attached. (Also amplify the benefits of intergenerational wealth transfer.)

There is no "just". If someone can come up with that exploit in an HN comment, it would be incredible if there were no provisions to explicitly forbid this kind of share from being used in this fashion.

It’s an NP hard problem. Tracing beneficial ownership is tough to scale. That’s why our system does it sparingly, e.g. when investigating malfeasance. Every past attempt at systematising this trace function has run into hurdles which are now predictable. They aren’t easy to solve without creating unacceptable side effects, and it’s easier for the beneficial owner to adapt than for an exchange to re-write its rules.

Re: The Long-Term Stock Exchange Comes to Life

#182

Post by tomatocracy »

whack wrote: post #16

"Tenured shareholder voting power, meaning that a shareholder’s votes would be proportionately weighted by the length of time the shares have been held" I wonder if we're going to see the rise of holding companies just to get around this rule. "Our holding company owns shares in XYZ, and will never sell those shares ever. Instead of buying/selling XYZ directly, you can instead buy/sell shares in our holding company.…

Probably not for the general case. Voting rights are almost irrelevant to the average shareholder in public equity (including institutional holders unless they have large blocks). If they truly disagree with management, they'll just sell instead and put their money elsewhere. It's both less work and less risky than trying to force change - management can ultimately simply say "feel free to vote us out if you disagree" knowing that that is extremely unlikely to ever happen because it's so incredibly rare that a large enough group of shareholders in a listed company feel strongly enough to go down that route.

Large institutional blocks will probably be structured this way because the cost of doing so is low so "why wouldn't you?". In fact there are companies out there where this is already the case as they have similar rules in their constitutional documents and the large blocks do indeed work that way.

There are actually many examples of companies where some shareholders are disenfranchised in one way or another (e.g. family ownership with special rights, minority listings, this type of scheme, 51% "Russian Dolls" holding companies, etc etc). Generally where I've seen these type of rules they serve to strengthen management against shareholders and entrenches the agency conflict to the detriment of the company's value over the long term.

Realistically, in a more typical listed company with a diverse shareholder base the only realistic option shareholders have is to force management out. The irony is that this rule acts to stop this from happening or slow it down and insulate management from that threat (further entrenching the agency conflict between shareholders and management).

Investors who are in the business of more actively engaging with management and strategy tend to do so away from public markets because it's not really that great a strategy unless you can gain significant control in terms of %age stake - so Private Equity, VC, family ownership, etc mostly tend not to be things that happen in publicly listed companies.

Re: The Long-Term Stock Exchange Comes to Life

#183

Post by WalterBright »

zero_intp wrote: post #165
WalterBright wrote: post #140

Earlier quoted context omitted.

If that is true, why do S&P500 index values continue to rise, decade after decade?

Hi Walter, this line of questions is not going to lead to a proof of your position. The S&P index removes failures, so your question fails to address survivor bias. Also, you argue the perfect over the good as a reason for status quo.

Proof, no but strong evidence. Yes, companies fail all the time. Is that due to short term thinking - or simply making too many mistakes? Sure, there are companies that sacrifice long term for short term. Their market caps tank because investors aren't fooled.

But the overall growth in the economy and strong long term growth of much of the S&P 500 is ample evidence that investment is not dominated by short term thinking, and that the S&P 500 is not a massive pump & dump scheme.

Re: The Long-Term Stock Exchange Comes to Life

#184

Post by WalterBright »

cpkpad wrote: post #163
WalterBright wrote: post #135

Earlier quoted context omitted.

> This is not popular opinion, it's exactly the truth. Then which stocks are you sure are doing this, and are you shorting them? > There had been a decade when no one was interested in Amazon stock This is simply not true. AMZN has been a solid performer since its IPO. I should know, I'm a happy AMZN long term investor. > that will result in stock pop so they can cash out That implies they must find a lot of suckers…

> That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all. It actually indicates something a bit different. CEO's optimize for their own compensation with bonuses and similar set by quarterly goals. They optimize for meeting goals over company performance. Externally, compani…

> Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated.

Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street".

If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good.

If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly.

It's just not plausible that CEOs can routinely and easily fool these guys.

Re: The Long-Term Stock Exchange Comes to Life

#185

Post by WalterBright »

gbear605 wrote: post #179
WalterBright wrote: post #132

Earlier quoted context omitted.

I've done well investing on the presumption that companies are long term focused. I.e. I'm a buy and hold and hold and hold investor. The longest I've held a stock (Boeing) is 37 years. You can check how well it's done for yourself over that time period, and Boeing was constantly charged with destroying the long term in favor of short term results. It's inconceivable that Boeing was not long term focused with those r…

Not at all. I don't know anything about Boeing in specific here, but: Say that Boeing was short term focused over that time period but managed to do well, quarter after quarter, continuing to rise. It's possible that if instead Boeing had been long term focused over that time period, each many individual quarters would have been worse, but it could have a higher valuation now . Of course, that's certainly not proof t…

Boeing invests in new airplane programs that can take 10 to 15 years to turn profitable. The charge that Boeing is short term focused makes no sense at all, but that doesn't even blunt the regular charges that Boeing management sacrifices long term for short term results.

Re: The Long-Term Stock Exchange Comes to Life

#186

Post by WalterBright »

jnordwick wrote: post #176
WalterBright wrote: post #136

Earlier quoted context omitted.

> I experienced the short-term thinking firsthand I have too. The company stock tanked and the company disappeared. There's a word for short term companies - "bankrupt". Investors as group are simply not that stupid.

You're talking to a group of people who think they know everything about anything from corporate finance to macro econ to philosophy. People here are generally technocrats with too little belief in others ability and too much belief in their own.

I just try to point out the obvious :-)

From my point of view, if a person was right that X Corp was sacrificing the long term for short term profits, and that nobody else has cottoned on to it, they would be making a fortune shorting the stock.

I.e. if they were so sure they were right, they'd be willing to put money on it.

As for me, as mentioned before, I put my money where my theories are. I'm a long term investor (riding the booms and busts up and down) and have done satisfyingly well for it. I've had my failures, too, riding Enron right down to zero :-) but overall it's been good.

Re: The Long-Term Stock Exchange Comes to Life

#187

Post by jnordwick »

WalterBright wrote: post #186
jnordwick wrote: post #176

Earlier quoted context omitted.

You're talking to a group of people who think they know everything about anything from corporate finance to macro econ to philosophy. People here are generally technocrats with too little belief in others ability and too much belief in their own.

I just try to point out the obvious :-) From my point of view, if a person was right that X Corp was sacrificing the long term for short term profits, and that nobody else has cottoned on to it, they would be making a fortune shorting the stock. I.e. if they were so sure they were right, they'd be willing to put money on it. As for me, as mentioned before, I put my money where my theories are. I'm a long term investo…

Technocrats will almost always blame their failures on the irrationality of everybody else.

Re: The Long-Term Stock Exchange Comes to Life

#189

Post by roguecoder »

untangle wrote: post #99

I applaud efforts to improve corporate governance and rationalize public market function. But I believe that this initiative to "...realign investors and companies around long-term value creation (LTVC)..." is a suboptimal approach. First, who in the game really favors LTVC? As a generalization, I would say passive investors and/or those seeking income. For these parties, guaranteed dividends might be a more effectiv…

There's also two other groups here: employees are very likely to value long-term value creation, since it would provide job security, an incentive to invest in employees, and a better chance of bonuses and raises. Second, communities where these companies are located: handing out tax incentives and cheap loans make more sense if the company isn't going to leave the community high and dry in a couple years. The advantages of long-term value creation aren't just fear-oriented: it's possible such a company will be able to hire people and rent office space more cheaply because it has that label.

If that ends up being the case, boards could easily start looking for CEOs willing to make the commitment to qualifying as a long-term company.

Re: The Long-Term Stock Exchange Comes to Life

#190

Post by roguecoder »

deepGem wrote: post #147

I was initially very skeptical of this idea and I still am. Like many threads have pointed below, long term strategy is super easy to game. Oh 'we haven't made any money this quarter because we are debating and finalizing our long term goals'. This could become the anathema of rapid iteration. NVidia and FB are perfect examples of consistent performance Q over Q. That doesn't mean they don't have a long term vision.…

How is that gaming long-term strategy? That sounds like not having a long-term strategy, which would be terrible under any philosophy. If anything it's easier to coast by now, when no one bothers asking if you've thought past next quarter.

Facebook is a very long-term company, with a consistent mission, moonshot projects and "wasteful" spending all over the place. It gets to do that, though, because it's already dual class and not subject to the whims of the market.

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