Will the Long-Term Stock Exchange Make a Difference? • Hacker News Board

Re: Will the Long-Term Stock Exchange Make a Difference?

#21

Post by sigstoat » Fri, Sep 06, 2019, 6:02 PM UTC

robbrit wrote: post #20

nitwit005 wrote: post #16

Earlier quoted context omitted.

> Regular quarterly targets are an important part of management discipline. This boils down to "having goals is important", which is certainly true, but most of us have seen managers try to improve quarterly numbers at the expense of company health. The effect is pronounced enough that people time purchases to be near other companies end of quarter, knowing they'll get a better deal.

> most of us have seen managers try to improve quarterly numbers at the expense of company health Yep, this does happen. The point though, is to let shareholders rather than managers decide if this is a good choice. If managers are sacrificing the long-term health of the company, shareholders can vote them out or choose to sell their stake. This is one of the downsides of the rise of passive investing and ETFs based…

> This is one of the downsides of the rise of passive investing and ETFs based on market cap - less votes are going into the system and holding people accountable.

uh. the fund managers vote their shares. and they've got way more time and subject matter expertise to do it than the mom & pop investors.

Re: Will the Long-Term Stock Exchange Make a Difference?

#22

Post by tempsy » Fri, Sep 06, 2019, 6:18 PM UTC

What I don't necessarily get is that from interviews with the founders they are suggesting that they think companies will list on multiple exchanges, including LTSE.

How would that work? If you list on a traditional exchange, then the problem is not solved since they still are going to be reporting quarterly and the speed of price discovery will stay the same as it is today. Wouldn't the price on that exchange inform the price on LTSE? How would that change anything?

Re: Will the Long-Term Stock Exchange Make a Difference?

#23

Post by pmart123 » Fri, Sep 06, 2019, 6:36 PM UTC

Conceptually, this is interesting. In Europe, some companies like L'Oreal already offer bonus dividends for institutional shareholders who have held shares for longer than one and two years. Voting rights could be another way to incentive long-term holders. However, it is hard to tell where the rubber meets the road.

There has been a strong movement to passive ownership. Would this disincentive index providers from adding new economy stocks by kicking out old economy stocks? Would the ETF providers eventually have too much control? There's definitely fixable solutions to these issues as well as hopefully solving other recent prevalent problems such as no voting rights common stock.

Right now is NYSE and Nasdaq no longer make money on listing fees, but make money on selling datafeeds. Given the LTSE's objectives, it will likely need to monetize through listing fees or an alternative way.

Re: Will the Long-Term Stock Exchange Make a Difference?

#24

Post by pmart123 » Fri, Sep 06, 2019, 6:38 PM UTC

navigatesol wrote: post #7

The disdain that (mostly) tech company CEOs have for the people to whom they sold ownership to is utterly baffling. > LTSE’s founder said that he discovered in his conversations with entrepreneurs that many were reluctant to go public. Then don't. You need money? Well then, I guess the people who have it get to make some decisions and hold you accountable. The idea that you can't build a long-term company on the publ…

It's likely important to distinguish whether this disdain is from being a public company due to regulatory requirements or due to having public shareholders. I agree with your point if it is the later. If it is the former, perhaps regulatory changes are needed versus a new exchange.

Re: Will the Long-Term Stock Exchange Make a Difference?

#25

Post by dragontamer » Fri, Sep 06, 2019, 7:10 PM UTC

dcolkitt wrote: post #9

The prevailing narrative on this topic is "greedy investors only care about short-term profits". The spin is that visionary CEOs try to build long-term growth and innovation, but they're continuously stymied by Wall Street vultures. However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. Thi…

> towards wasteful ego-stroking empire building when not properly monitored

What is "ego-stroking empire building" exactly? I think I can imagine cartoon-characters who do this, but I'm having difficulty thinking of real world examples.

Re: Will the Long-Term Stock Exchange Make a Difference?

#26

Post by roguecoder » Fri, Sep 06, 2019, 7:30 PM UTC

dcolkitt wrote: post #9

The prevailing narrative on this topic is "greedy investors only care about short-term profits". The spin is that visionary CEOs try to build long-term growth and innovation, but they're continuously stymied by Wall Street vultures. However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. Thi…

Managing to metrics because they are easy to measure instead of because they actually reflect the outcome you want is a very common mistake, but it seems like a particularly destructive problem to design our economy around that. It's probably why so many companies treat their employees like disposable punching bags: they can't easily measure the payoff from investing in employees so it must not be worth doing, right?

Re: Will the Long-Term Stock Exchange Make a Difference?

#27

Post by roguecoder » Fri, Sep 06, 2019, 7:32 PM UTC

jshaqaw wrote: post #18

nitwit005 wrote: post #16

Earlier quoted context omitted.

> Regular quarterly targets are an important part of management discipline. This boils down to "having goals is important", which is certainly true, but most of us have seen managers try to improve quarterly numbers at the expense of company health. The effect is pronounced enough that people time purchases to be near other companies end of quarter, knowing they'll get a better deal.

I accept that but ANY measured goals will be games as a fairly universal principle of human organization. If you shift accountability to annual the incentives to game increase because you have a whole year before you need to fess up.

This seems like it would be a good reason not to link CEO pay to outcomes at all: game theory says that as long as metrics have no impact on you personally, you don't have any incentive to game them.

Re: Will the Long-Term Stock Exchange Make a Difference?

#28

Post by roguecoder » Fri, Sep 06, 2019, 7:36 PM UTC

jshaqaw wrote: post #17

Whenever a CEO complains about quarterly accountability I ask them “would you like your direct reports to check in with you once a year?” It is ironic as management move towards real-time 24/7 dashboards to track key metrics, every 3 months is viewed as an inappropriate timeframe to judge progress or lack thereof. The fact is public market investors are desperate to find high return places to invest capital. There is…

Going the other direction would be interesting: if companies produced ongoing metrics, there might be fewer rewards for gaming them and less impact from missing one hour's target. I doubt either the SEC or the accountants are interested in going that direction, but it seems like it is the periodic nature that is the problem, rather than the specific length of time. Perhaps there should be a Continuous Reporting movement.

Re: Will the Long-Term Stock Exchange Make a Difference?

#29

Post by rjf72 » Fri, Sep 06, 2019, 7:39 PM UTC

I found it extremely surprising that this company didn't mention the new trend towards "public" companies. For instance Zuckerberg controls the majority of voting shares for Facebook, at Google Page/Brin control the majority, and so on. For those that don't know the 'trick', it's simply different quality shares. They allocate themselves a minority of shares, but ones with 10x the voting power of normal shares - enough to ensure unilateral (or bilateral in the case of Sergey and Larry) control over "public" companies.

This is, for instance, why trying to unify shareholders against Zuckerberg was quite bemusing. Literally every single Facebook shareholder could vote to do away with Zuckerberg. It wouldn't matter - he's not going anywhere unless he wants to. Suffice to say, these sort of "public" companies don't seem to be engaging in any more enlightened longview than those who are genuinely under the heel of profit seeking shareholders.

Re: Will the Long-Term Stock Exchange Make a Difference?

#30

Post by owens99 » Fri, Sep 06, 2019, 7:39 PM UTC

dcolkitt wrote: post #9

The prevailing narrative on this topic is "greedy investors only care about short-term profits". The spin is that visionary CEOs try to build long-term growth and innovation, but they're continuously stymied by Wall Street vultures. However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. Thi…

> When management does demonstrate credibility, Wall Street's usually more than happy to let them focus on long-term initiatives. Just look at Amazon, which is a darling of the investment community, trusted to steer nearly a trillion dollars in shareholder capital. Bezos has continuously poured huge resources into long-term speculative initiatives at the expense of quarterly earnings. And he's loved by shareholders for it, because he has a history of competence and putting company interests above personal ones.

I'm sure this perspective is not correct.

You are pointing out something that exists, but your argument about why it exists is misguided.

Bezos can do this because he is a Founding CEO. I recommend reading Andreessen Horowitz's primary thesis on why they invest in Founding CEOs (https://a16z.com/2010/04/28/why-we-prefer-founding-ceos/).

Founding CEOs, as opposed to Professional CEOs, have two things working for them: 1) Moral Authority 2) An Ability to Recognize New Product Cycles.

1) Moral Authority: It's not that shareholders trust Bezos more than anyone else. It's that he has Moral Authority to take risks because he founded the company. Per Ben Horowitz:

"Often, true innovation requires throwing out many of the foundational assumptions of the company. If the company is significant, doing so may be extremely difficult for the professional CEO. The company’s core belief system is often entangled in those assumptions. Since the founding CEO made the assumptions in the first place, it is much easier for her. An excellent example of existing, invalid assumptions paralyzing a whole set of companies recently played out in the music industry."

2) Ability to Recognize New Product Cycles: This is a skill professional CEOs simply don't have. Again, per Ben Horowitz:

"Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade. Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance."

So in essence, what you are saying, that public companies have the ability to be like Bezos, is simply not true and never will be true. This is why something like the LTSE is a needed experiment.