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Comment by mathattack | Hacker News Reader

Here's my problem with the Long Term Stock Exchange idea...

What makes the tech echosystem thrive is the flexible capital and labor model. Anyone can get a little money to chase their idea. The small ideas get starved for capital and labor until they get market validation. Then the capital and labor chases them. And that's how great companies grow so quickly in a land of startups.

Anything that restricts mobility of labor hinders this and should be fought. (Example: Non-competes, cost-prohibitive real estate, etc)

Anything that restricts mobility of capital should be fought too. To have capital available for great ideas, it should be easy to flee ideas that aren't working out. (This is also why share buybacks from mature companies are fine - the capital get recycled)

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I have mixed feelings here, but I'm certainly not entirely negative.

Activist investors have done a great deal of real damage, mostly by demanding that sound companies sacrifice long-term planning in favor of dividends and short term wealth gain.

It's 'creative destruction', sure, but it's not about companies failing when they can't compete. It's about investors leveraging a regulatory environment to turn profit on something other than actual value creation. A system that directly rewards incumbents seems questionable, but a system where shareholders gain influence within a single company over time seems like a reasonable answer to short-termism.

I agree with you in principle. The problem is that status quo encourages very short term thinking that has caused a lot of damage. I think it's at least worth toying around with longer-term incentives to see what can come out of it. I'm not super excited about 5 or 10 year vests (especially 20 years into my tech career without an FU nest egg), but it's a far lesser evil than non-competes or astronomical real estate (the latter being the thing that will likely drive me away for the sake of my family).

I'm not sure I follow you on real estate. Does the OP's proposal for long term capital fix that? Best I can tell, the one thing that will fix expensive real estate is autonomous cars. (Parking can be converted to housing, and longer commutes become tolerable)

Actually I was just reflecting your examples, not citing things which the proposal would fix.

ah - got it. Unfortunately expensive real estate is a 2nd order effect of flexible labor and capital.

As far as I can tell, the company doesn't get anything as the shares are traded back and forth. Yet they're still beholden to a lot of short term chasing, because that's what shareholders demand.

Right - the IPO is about trading future claims on income. But if the owners do bad things, in theory it hurts the equity price in the future.

The system isn't perfect by any means, but discouraging people from exchanging equity when they have differences of opinion doesn't help.

Well, bad is a relative term, and that's part of the problem. A number of "activist investors" consider it bad if they're not getting huge dividends and growth from every company, pressing short term gains instead of long term sustainability. And what's worse, sometimes these investors buy the stock specifically so they can do that.

Every company needs to balance this. If there is no investment now, there is no future.

The key is the amount each company should invest depends on it's situation. Some companies don't do a good job investing in their future, and are better off returning money to shareholders. (Look at companies that "invest" in corporate jets for example) Other companies are better at making good investments, and should invest all their profits and then some.

It's not investors who pursue short term gains at the expense of long term gains, it's management. CEOS/Boards/Top management practice share price manipulation to maximize the value of their own stock options. If you are CEO of a company and you have a big block of options vesting at years end, it's time to announce a buy back program to get the stock to pop, even if it's determinedly to building the long term value of the business.

If you want shareholders to act more like owners, allow them to be treated like owners. Currently the SEC's anti-raider rules prevent any shareholders from proposing board slates. Boards are picked by boards, insiders pick insiders. That's the real disconnect here.

And there, again, the myth is repeated that the market is an efficient way to encourage good ideas.

It isn't. It's a good way to encourage safe ideas.

Are you saying that limiting people's ability to exit bad investments encourages good ideas?

I think that the stock market model encourages short-term thinking. I think everyone agrees with that.

Thankfully there's another option: just don't sell out. Stay private. You might not become a billionaire, but who really wants to be a billionaire anyway?

Just because "everyone" agrees with something doesn't make it true.

Amazon, Berkshire Hathaway, Apple, etc, etc, are public businesses run for the long term best interests of their shareholders.

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