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The Long-Term Stock Exchange Is Worth a Shot

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Re: The Long-Term Stock Exchange Is Worth a Shot

#61

Post by cjlars »

And when an owner wants to raise liquidity? They'll take a hit due to the cliff issue (voting rights have value and you destroy voting rights by selling). So any company with tenured voting rights will have created a system that forces owners to sell shares at a discount to their current value. And because they can't sell for more value than they get from holding, they would tend to prefer value-destroying and excessive short term cash distributions up and until the point where the damage from those distributions equalizes with the value destroyed at sale.

I'm sure some economist smarter than me could formalize the issue, but unless the cliff issue is solved, this sort of ownership scheme will not result in shareholders maximizing long term value.

A dominant founder-CEO could mitigate or overpower the incentives described above, but my guess is that any company that successfully gets of the ground using this scheme will replace their tenured shares with ordinary common shares at some point.

Re: The Long-Term Stock Exchange Is Worth a Shot

#62

Post by JumpCrisscross »

taurath wrote: post #59
JumpCrisscross wrote: post #56

Earlier quoted context omitted.

> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? Strictly speaking, nobody needs an exchange to implement a corporate voting regime where one's vote per share increases as a function of holding time. You just amend your certificate of incorporation and/or bylaws and, assuming the state in which you're incorporate allows it, it happens. The trouble is most stock exchan…

That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares. If you have “high priority” voting shares worth $100, they could be worth $90 or less to the investor that is buying them because they decrease in value on every trade.

> That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares

Which is why you see private companies experimenting with all manner of super-voting classes of stock (usually for founders) but never with this idea. New money would be reticent to invest.

Devil's advocate: investors didn't seem to care about Snaps' zero-vote stock.

Re: The Long-Term Stock Exchange Is Worth a Shot

#63

Post by WalterBright »

Someone1234 wrote: post #4

That sounds very interesting conceptually. Businesses have been moving further and further into short-termism; with the next quarter being the most important metric. This is partly due to investors also being short-term, and voting on the board who will bring the most value in the shortest period. I'd be interested in taking part in a Long-Term stock exchange, even if it is an experiment at this point.

> Businesses have been moving further and further into short-termism; with the next quarter being the most important metric.

That's the conventional wisdom, I've heard it my whole life, and I see no evidence of it. AMZN, MSFT, etc.

I've known CEOs who believed it, and manipulated the books to make the short term look better at the expense of the long term. Investors weren't fooled and the stocks would tank.

Re: The Long-Term Stock Exchange Is Worth a Shot

#64

Post by WalterBright »

grondilu wrote: post #33
danmaz74 wrote: post #29

Earlier quoted context omitted.

If I got this correctly, when you sell your shares with high voting power, they lose their high voting power.

Then you'd just create an incentive to sell the share in dark markets. You'd officially still be the owner of the share, but in secret you would have sold your voting right by agreeing with someone to vote on command in exchange for money. As is said in the 1981 movie "rollover", capitalism is like a force of nature : you can try to fight it, but in the end it always win[1] And even if somehow you succeed, you would…

For an analogy, look at the effects of California's Prop 13, where holding property long term gets you dramatically lower property taxes.

Re: The Long-Term Stock Exchange Is Worth a Shot

#65

Post by jessriedel »

hobbyjogger wrote: post #50
jessriedel wrote: post #6

Earlier quoted context omitted.

> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? The fact that a company is listed on multiple exchanges doesn't mean it has different sorts of stock for each exchange. This real subject of this article is tenure voting , which is an aspect of the stock (not the exchange). The reason exchanges are mentioned is that exchanges have rules about the sorts of stock they wi…

>Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. You've essentially just described the current system. Most shares on NASDAQ and NYSE etc. are technically held by Dep…

> tenure voting would surely be based on the tenure of the beneficial owner

This only works if the intermediate holder of the stocks is coordinating with the exchange and/or company. The problem is that there is a financial incentive for someone else who is not working with them to buy up the stock, immediately resell it with the normal guarantees (that they will pass on dividends, allow voting by proxy etc.), but not pass on such re-sell information to the exchange/company.

Does the exchange/company have some sort of a right to prevent resale unless tenure information is tracked? Naively Id guess that they can't, or otherwise they's try to prevent stuff like short-selling too.

Re: The Long-Term Stock Exchange Is Worth a Shot

#66

Post by jshaqaw »

WalterBright wrote: post #63
Someone1234 wrote: post #4

That sounds very interesting conceptually. Businesses have been moving further and further into short-termism; with the next quarter being the most important metric. This is partly due to investors also being short-term, and voting on the board who will bring the most value in the shortest period. I'd be interested in taking part in a Long-Term stock exchange, even if it is an experiment at this point.

> Businesses have been moving further and further into short-termism; with the next quarter being the most important metric. That's the conventional wisdom, I've heard it my whole life, and I see no evidence of it. AMZN, MSFT, etc. I've known CEOs who believed it, and manipulated the books to make the short term look better at the expense of the long term. Investors weren't fooled and the stocks would tank.

100 percent agree. Corporate management repeats that short term thinking is a disease so much media just parrots this without thinking that it serves powerful vested interests.

Re: The Long-Term Stock Exchange Is Worth a Shot

#67

Post by jshaqaw »

andreasklinger wrote: post #45
kolbe wrote: post #39

Forget all the practical hurdles, tell me why this premise is even correct. Just because I've owned a share for a long time, that implies that I have more interest in the long term performance of the company going forward? Just because the word "long" is part of the description of a past action doesn't mean it's in any way correlated with an expected future action. And it's often negative. See: basketball games, reti…

Explicit expectations by the market towards the leadership. As in: Do not worry about quarterly profits but longterm success

Does anyone report to you? If they do, how would you respond if they said “I’d like to check in with you on my progress/metrics/etc... just once a year.” Sound like a good idea? It’s a terrible idea for managing people and a terrible idea for corporate governance. As high performance organizations move to daily if internal accountability it’s laughable that they complain accountability every 90 days to them owners of the company is too much.

Re: The Long-Term Stock Exchange Is Worth a Shot

#68

Post by jshaqaw »

Retric wrote: post #5
mooneater wrote: post #3

How that plays out would be very sensitive to the exact formula for tenure. Ie. A voting "cliff" where you can only vote after year 1. Vs votes per years held * shares, in which case an early investor could get entrenched.

I would probably go for some middle ground such as if (year > 0) then shares * Square root (years). Just because someone has held a stock for 20 years does not necessarily mean they are currently interested in the long term. But, it probably points in that direction.

Or it means they are so utterly passive and unthinking that they are just the voters entrenched management dreams about.

Re: The Long-Term Stock Exchange Is Worth a Shot

#69

Post by kevinr »

I think it's all going to depend on how the tenure mechanism is implemented. There's got to be some way for new money to "catch up" to old money within some reasonable time horizon, say 10 years, rather than old money's voting power growing unbounded.

Re: The Long-Term Stock Exchange Is Worth a Shot

#70

Post by jopsen »

hobbyjogger wrote: post #50
jessriedel wrote: post #6

Earlier quoted context omitted.

> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? The fact that a company is listed on multiple exchanges doesn't mean it has different sorts of stock for each exchange. This real subject of this article is tenure voting , which is an aspect of the stock (not the exchange). The reason exchanges are mentioned is that exchanges have rules about the sorts of stock they wi…

>Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. You've essentially just described the current system. Most shares on NASDAQ and NYSE etc. are technically held by Dep…

> legal fiction that the shares are "owned" by Joe Schmoe, even though all he really has is an attenuated set of contractual rights

What is a stock really, if not "a set of contractual rights"?

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