The Long-Term Stock Exchange Comes to Life
blog.ltse.com
blog.ltse.com
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. We will confer voting power in XYZ, proportional to how many shares of our holding company you own, regardless of how long you've held them."
I suppose one way to prevent this loophole is to grant voting power only to individuals, and not entities, but that would screw over index-funds, mutual-funds, foundations, non-profit-endowments etc etc.
Would it be possible to contractually obligate any entities holding these stocks to also adopt tenured shareholder voting power?
Doing so would certainly improve the loophole situation, though I suspect it doesn't fix it entirely... Things probably get weird when you nest tenure effects.
Well, depending on the country the LTSE is based in, and whether that law is honored through some trade agreement signed into law in that country, I imagine what the Italian government thinks about the issue is moot.
> what of situations in which collateral shares are foreclosed upon, they are inherited, or other non-voluntary transfers of ownership?
I'm wondering if they have or are considering a grace period where if the shares are reacquired within that period the voting rights remain the same. I imagine they definitely wouldn't want the rights transferred in the case of foreclosure.
Inheritance is an interesting one, but then again, it's only a problem if you take the view that your assets should all be transferred to your relatives on death. As with inheritance taxes, there are competing incentives. Maybe shares under a certain quantity could transfer over with voting weight intact, or maybe they should just lose half their time-based voting weight (or just have the time halved, which might still leave them in the top tier of voting weight).
There's lots of ways to structure it to achieve certain goals. I'm sure some would see new case law made.
I am an Italian citizen. Say I own shares on the LTSE. Say I also owe the Italian government some back taxes, and that the government moves to expropriate my assets to cover my liability. My LTSE shares are now the property of the Italian government and have been shorn of whatever by-laws they might have had attached. The government then proceeds to auction off the components of my esistiate to the highest bidder, who purchases the shares without any obligation regarding his duties and structure.
This is why in general (in the mathematical sense, meaning ”in all cases”) the scheme you posit is not iron-clad. Probably it will work in most circumstances but that’s a lesser level of certainty that offers no guarantees whatsoever.
Would it be legal to simply grant extra rights to owners who adhere to the LTSE's rules? Ie, one share carries 1 'point' of voting power, unless the owner is an individual or an entity which adheres to the LTSE rules, in which case the share carries 1 + kt points of voting power.
If an entity outside the LTSE holds some shares, that's fine. They just extract very little value from them compared to an entity within the LTSE, increasing the value of all other shares outstanding and creating a strong incentive for that entity to sell back into LTSE.
If I own shares in a holding company, which owns shares in an LTSE-company, don’t I have this right? If not me, who else?
The LTSE serves its purpose of incentivizing long-term ownership of XYZ, but it's a pyrrhic victory: whenever an XYZ shareholder wants liquidity, rather than sell, they could borrow shares of ABC with their XYZ shares held as collateral (by definition, they have the same fundamentals) and short-sell the ABC. Or if they truly want out, they sell their XYZ shares to ABC (no other buyer would be interested, if they can get the same ownership claim with fewer restrictions by buying ABC directly), which then issues new shares on the normal public markets to maintain the peg. Either way, owners of XYZ are still incentivized to care about the short-term price movements of XYZ (through its ABC proxy) on the public markets, because they can achieve liquidity by proxy.
With a shift to long term outcomes, one could do any number of things that are short term bad to line their pockets and claim the benefit is further down the road. The problem isn't really about short or long term goals - does Amazon or Tesla give a rats ass about profit next quarter? No, and IMHO one of those is a solid company while both have high valuations.
In some cases I think the answer is to strip investors of control. They are the ones allegedly pushing short term profits at the expense of the long term. But what is ownership if not a form of control?
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. This has its downside too in cases where growth may require reinvestment. Perhaps forcing dividend payments for all cash equivalents above some threshold? I dunno, there are a lot of ways to approach this and none of them are good for all companies.
I do like dividend paying stock, but is that not a form of short term thinking? “May me my dividend this quarter, I don’t care when happens next year!”
Because they think it is going even higher?
"Fundamentals" are far from the only reason to be long an equity contract.
Buying a dividend share that can potentially go up however, is very nice though, such as when purchasing Apple several years ago.
In common law countries, trusts law means you can distinguish between who has controlling interest and who has beneficial ownership.
So you can own a thing but not own the thing.
If I own something on trust for you, I can control it, but only in your best interests. If you own it on trust for me, I can benefit from the ownership, but without a lot of other legal effects that would normally ride shotgun with a full and undivided ownership.
As usual: I am not a lawyer, this is not legal advice.
Hopefully this was a very fleeting thought; when it comes to ideas about changing corporate structure you couldn't really come up with a worse one. It is a complete violation of the skin-in-the-game principle that has so successfully propelled capitalist society for more than 200 years.
If management aren't accountable to the wishes of people who have proven they can preserve or grow piles of money, there will be economic waste on a colossal scale compared to what we have now. Corporate management would be overwhelmed by fast talking con men.
Turn your attention instead to the forces that are making short term decisions the better ones. I'm no expert, but if short-term thinking has been going on for a long-term time then something is more fundamentally wrong than "gee, people with money must just be stupid!". People don't seem to like accepting quite how rationally intelligent markets are - the only thing markets have been shown not to do well is make sacrifices for moral reasons.
If i make good (short-term) decisions each quarter, then won't that just add up to be a good decision after 4 quarters? If it turns out that the 'good' decision last quarter turned out to be bad _this_ quarter, then you'd make a change to fix it for _this_ quarter_.
Rather than plan out a 10 year plan, which you can't possibly predict in advance what may happen.
E.g. one (of many) factor in Commodores decline and failure was that they at one point made a "brilliant" move of undercutting the competition in a way that drove massive sales while costing them dis-proportionally little in lost revenues from all of the hardware already in their channel.
Unfortunately it did that by cutting the feet under their dealer network by going mass market retailers and cutting the RRP in public, without giving retailers advance warning, and without giving their dealers rebates on product in their channel that had not yet been sold.
As a result their results looked good for a little while, but they bred so much resentment in their dealer network that it still haunted them years later when they suddenly badly needed that dealer network to push out the Amiga, which was released at a price point where the mass market discount retailers weren't suitable.
It took years for the total cost of that stunt to be visible, and even then it's hard to account for the total impact to the company even now, decades later.
It's not an easy problem.
Even reading this claim in the narrow context of the article it seems too broad. John Cassidy has written an insightful book “How markets fail“ that explains when markets do not generate optimal or desirable outcomes.
There is short-term thinking encoded into religion on this planet. Short term thinking in the end even extinguishes your beloved capitalism. If there is one thing we need less, its this. And if there is one thing, build to overcome short term thinking its abstract entity's like cooperation's and goverments. The individual is bound to fail here.
So yes, you have a valid point here, but instead of providing a solution, you just regress and suggest we go back to the drawing board and wing it while there?
Because it is wishful thinking?
Where would the rational intelligence of stock markets be right now without the trillions of dollars in shares bought up directly by central banks and sovereign wealth funds or by corporations using essentially free money provided by central banks?
Last time I checked none of the economic theories about optimal markets included massive state interventions to help markets find the optimal price.
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).
It appears to me that it will, at least, make more expensive to think short term than long term, and that is the intended incentive of this stock exchange (as you could as well just buy more shares if you want more control).
Why not just block organizations that sell such a service as above be denied the benefit from increasing voting shares? Why ban all organizations instead of the ones trying to game it?
A holding company like that would confer at most the same voting power as trading XYZ directly, but most likely strictly less voting power in XYZ.
A mutual fund which has only held XYZ for a short time would confer little voting power even to shareholders which have held it the longest.
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.
This is a popular opinion, but I find it difficult to believe. It relies on the notion that stockholders are fools and unable to recognize when a company destroys its long term prospects for short term gain.
The trouble is, once the short term gain is there, who are the short termers going to sell to? A bunch of suckers?
And Wall Street richly rewards companies for long term behavior - there's no other explanation for Amazon's high P/E.
Lastly, the stock market returns for the last 50 years are excellent. If the corporations were all sacrificing long term for the short term, how has such sustained growth been possible?
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
Again, this relies on fooling the investors who bid up the stock price based on that. How long can a company continue to fool the investors?
I had a CEO once tell me how he had manipulated the accounts for short term gains "because that's what Wall Street wants." But the stock tanked. The only one fooled was the CEO. The company has since disappeared.
The S&P500 is made up of companies that have been around for a while. How long do you think a company is going to last, if quarter after quarter they eat their seed corn? How do you explain the growth of the S&P500, decade after decade after decade, if the stock market is plagued with short term-itis?
It's inconceivable that Boeing was not long term focused with those results.
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 that they were long term focused, just that they weren't definitely short term focused.
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).
The question is whether the game would have made more money for the company if it was perfect and shipped later. It is not necessarily true that making a product better and delaying shipping is long term better for the company.
a perfect game released later may either become a classic that has huge long tail potential. A early-to-market game may produce a short hit/fad that passes.
It's almost random which will happen - as those doing these sorts of judgements prior to actually releasing have their own personal biases which can cloud their judgement one way or another.
Or, as is more common, the people working on a game have way more of a perfectionist streak than is worthwhile given the audiences.
What I always say in these situations: if two weeks worth of work would be the difference between a smash hit and a bomb, then who the fuck screwed up so bad to prioritize those work items to the last two weeks before launch?
If someone really messed up that badly, they should be called out. More often, those last few features really don't matter, and shipping is better than waiting. My experience is all with games that have digital updates, to be fair, shrink wrapped stuff may have different constraints (but similar questions about prioritization).
But that also ignores the realities of deadlines, contracts, and that sometimes "done" is more important than "perfect"
I'm just not totally bought into the idea that at large analysts and large investors can't recognize a short term for long term tradeoff.
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 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, companies work on perception. Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. They operate only on externally-visible information. Hence, CEOs (who expect an average tenure of three years) optimize for externally-visible information on metrics over long-term performance.
They also optimize for graft to the board members (so they can keep their jobs), but that's a whole different story.
The exception seem to be founder-run companies. Founders have an emotional stake, a more significant long-term financial stake, and have not gone through the corrupting process of becoming a CEO. Which of those is dominant? Your guess is as good as mine.
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.
Not necessarily "fools". "Not experts" and "easy to influence" would be like it. Very much the trouble with the modern democracy: incompetents elect those who scream the loudest and say what they want to hear.
Like many others here, I experienced the short-term thinking firsthand. Reckless and pointless acquisitions and hiring spree to prop up the KPIs and scream to the entire world, "look how great we're doing!!!" is just one example.
> The trouble is, once the short term gain is there, who are the short termers going to sell to? A bunch of suckers?
Absolutely. The greater fool, sadly, is the foundation of much of the modern global economy.
Look at any bubble over the last 50 years.
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.
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.
I think from first principles (e.g. just iterating backwards from the first quarter where short-termism has led to long term failures), there's not necessarily a reason to think that this is likely, but I'm not sure it's ruled out by your evidence.
In the linked WSJ article, that explains this quite a bit better than the medium blogpost. Basically, it appears that the main thing is that the voting power of shares win increase with the time the shares are owen. (Though there's talk of opting in to this process.) There's also going to be a prohibition on companies giving quarterly earnings guidance.
It seems like it's intended to reward founders and long-term employees of startups by privileging them over the more retail class of investor, and people with short-term goals, like activist investors. (But this is a mixed thing - it's more accountable than a setup with multiple stock classes where the founders retain all control.)
EDIT: Random thought: I wonder how this exchange would handle shorting stock, when it comes to the tenure requirement.
And what of options and other derivatives? What of trust funds and other intermediate vehicles of ownership that might themselves have (perhaps partially) changed hands?
(I assume that rules are built with ADG in mind, general constructs are far more involved.)
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.)
Our rules also are carefully tailored to Do The Right Thing with shorts and other derivatives, but I can’t say much yet about how it works in detail
Thanks for the comments and happy new year
Is it a stock market? Will I be able to buy and sell shares on eTrade or another 3rd party platform?
Who will list shares on it?
If I had to guess, I would guess it is just like the NYSE except you can only buy and sell shares every 5 years or something.
Yes, it is in the same regulatory category as NYSE or NASDAQ. Yes it allows you to buy shares of listed companies in all the ordinary ways, including retail brokers.
The best of the next generation of companies :)
Not a bad guess, but not quite right either. Our detailed rules (all 900 pages of legalese!) will be public soon enough.
I look forward to taking a squiz.
I imagine there's a fair amount of wording intended to allow rules to be updated quickly as bugs are uncovered.
How are you insured? I imagine there will be a few lawsuits fired across the bow.
Go read the Show HN of DropBox to see what I mean. Good luck!
I don’t mind, part of being in public with new ideas is putting up with a lot of snark and cynicism. It’s a bug in the human reward system - skeptics are right 99% of the time.
(x) My first idea was to create a market where you couldn't resell a stock until some (long) time has passed. Pretty much the exact opposite of algorithmic trading trying to pass orders at light speed. Another was to forbid any kind of option (not stock options, options) or any other indirect way of speculating over a stock. The idea was to try to ensure the stock owners that someone wouldn't be able to crash the stock of a company he doesn't have any interest in, just for profit.
All of those considerations stemmed from the 2008 crash of course, and all the irrational behaviors that followed. But i still think there should be a way to provide a "safer" place for business owners to attract new shareholders.
My question doesn't make that assumption. It questions the size of your target market. You are proposing to "reward" certain investor behaviors but I am suggesting that the numbers indicate that the vast majority place NO value on the reward you are offering.
It seems clear to me that the vast majority of people who have an interest in having exposure to the equity markets do NOT value voting rights.
If more people valued voting rights, then more would hold the stock directly or would only invest through intermediaries who advertise that they behave as shareholder activists. But, comparatively speaking, not many investors do.
When will it be open for individual investors to make a deposit? Is there a list of companies which will be chosen for initial listing?
While it's certainly a popular belief... from my understanding it's not at all proven, or even obvious, that stock markets encourage short-term thinking over long-term.
Indeed, theory would suggest the contrary: the value of a stock is the discounted entire future cash flow, which means the stock market should be focused on the long-term more than anybody else.
While managers, on the other hand, may only be around for a few years, and one could argue they have every incentive to pump the price of the stock as high as it can go in the short term, to maximize the value of their options -- to the detriment of long-term value.
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)?
E.g. see https://www.ft.com/content/23fd921e-3b75-11e5-bbd1-b37bc06f5...
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.
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.
The pressure on stock price and its desirability comes in part from using it as compensation (it goes up and your employees with ISOs stick around, it goes down and that 'stock offer' has no drawing power) and using stock to buy other companies (virtual capital). These pressures exist outside the function of voting and are just as prone to creating 'short term thinking' effects. After all gaming the stock price is a universal executive sport and to get rid of that, you have to get rid of the association between high stock price and tangible short term benefit.
So they have to fool an army of analysts that are generally very very good at predicting growth and profits? They have to fool institutional investors who are literally pros at filtering through BS filing gimmicks.
I've worked on trying trade automatically trade earnings reports (professionally) and the biggest problem was always the numbers didn't tell the complete story and investors caught on in literally seconds.
> The LTSE is designed to remove the short-term pressures that plague today’s public markets and reorient companies and investors around long-term thinking. Through brand new listing standards, software tools, and advocacy, we’re reinventing the public company experience with novel approaches to executive compensation, shareholder voting, disclosure practices, board and stakeholder policies, and community governance.
Have you found any reference to how they would handle short selling or derivatives? What if my ownership is of negative duration (naked short), how would that affect the average against which the seniority is measured (clearly I would have no title to voting). It has to be a relative measure since otherwise if everybody just bought the stock everybody’s rights would be 0 and nobody could vote to control the company.
How would they handle options? How would they handle ownership by means of intermediate vehicles (e.g. trust funds) that have themselves changed hands?
I haven't bothered searching. If they don't care enough to sell me on the idea - and they probably don't, I'm not their target - I don't care enough to go looking for reasons to buy into it.
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 effective alignment tool than titration of voting power. The dividends would also provide more incentive for them to invest.
Second, the folks who actually run the companies – CEOs and Boards – often favor the current setup. Short term metrics mean near term personal wealth. In a world where CEO tenure can be measured in quarters, why wouldn't I want to take money off the table ASAP? And lots of it. I would offer that greed (big bonuses) overcomes fear (shareholder votes) for these players. Thus, the more powerful lever is to reduce (alter) the incentives, not dilute the fear.
So perhaps a market that limits both retained earnings and executive compensation would seem a better mechanism for alignment around LTVC.
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.
I found this one [1] with good details like, "what is different about this exchange?"
* Tenured shareholder voting power, meaning that a shareholder’s votes would be proportionately weighted by the length of time the shares have been held
* Mandated ties at listed companies between executive pay and long-term business performance
* Additional disclosure requirements that allow companies to know who their long-term shareholders are and investors to know what investments the company is making
[1] https://qz.com/704657/eric-ries-ltse-long-term-stock-exchang...
The weighted votes method seems like it would have a more negative effect on liquidity and would disproportionately reward large institutional investors that can afford to stick around regardless of the financial outlook of the company, just to hedge their bets.
Another problem I see is that weighted voting would make older shares more valuable. By purchasing old shares you reduce the number of votes it would take to do anything. This is sort of similar to having a continuous rather than discreet set of share classes. What's interesting about this is that the vast majority of non-institutional investors never vote on anything. This means that, depending on the weighting function, individuals would actually be incentivized to sell their old stock and buy young stock. This would result in consolidation of more voting power in the hands of institutional investors and founders.
The biggest benefit I see of the weighted voting method against other alternatives is a bitcoin-like FOMO buy-in in the beginning.
It had me wonder what the opposite would be...
Imagine we forged a formula for 1000+ year projects. They would require more money periodically and the availability of new funds would have a strong influance on the value of previous cash injections. One could buy the "failing" project cheap then simply do the new cash injection yourself OR in case of success one could obtain the shares for less than their value.
We have so many papper driven games like this already. I see no reason why this one wouldnt work.
The fun questuon to ask...
What could we build that would take 1000 years?
A great what-if. While not exactly the same, I think you could look at the publicly funded projects like the Euro-projects, NASA, or the Soviet space program that still yield results.
Now imagine the big public companies doing the same.
Optimising for long-term benefits could help our civilisation become aware, and actively take steps towards the oncoming ecological disaster (because capitalism says if we're destroying the Earth, the solution isn't to stop "growth" and save Earth... Find another Earth instead!)
NVidia and FB are perfect examples of consistent performance Q over Q. That doesn't mean they don't have a long term vision. I'm sure there are many such companies that I haven't heard of.
Companies not going public has little or nothing to do with the focus on short term earnings. Companies are not going public because 1. There are alternative sources of cheap cash PE funds etc. 2. The cost of doing an IPO is incredibly high (in terms of time). 3. Associated processes Sarbanes-Ox etc are a pain to manage.
CEOs are willing to sacrifice some equity to avoid all these hassles and remain private.
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.
The current public trading framework has so many issues, it defeats the original purpose.
* amazing number of parasite intermediaries that create absolutely no value. Someone sells a day after they bought, how did it contribute to the economy or the company that tries to create the value?
* opacity required to keep the system "fair", and used to avoid responsibility
* populist decisions harmful in long-term because the management will be long gone after the effects emerge
and much more.
I've noticed that fundraising and liquidity are common problems for startup founders, and it seems to me that the public stock market could solve many of those problems. What if all startups were publicly traded entities right after incorporation?
Some of the benefits you would gain as a founder:
- A larger pool of potential investors. You would have access to investment from anyone instead of just accredited investors. For example, it would be interesting if early adopters could invest in startups that they support just as easily as they can buy stock in Apple because they love Apple products.
- Liquidity. You could buy and sell your shares of the company at any point. If you're a startup founder investing 100% of your time and capital into a business, it makes sense for you to diversify your assets at some point and not put all of your eggs into one basket.
- Better incentives. If your company was publicly traded from Day 1, you would still be incentivized to raise the value of your business because you still own shares. Better yet, now you don't have to worry about building a billion dollar business to satisfy the economics of your investors, you can sell shares of your $20M business so you're not worrying about your exit strategy all the time.
There's been a lot of activity in this space with the new crowdfunding bill, the SEC loosening up requirements for small companies, and things like ICOs. Has anyone else ever considered doing this with their startups? Just curious to hear what others think.
In my part of the world (Sweden) we have two market places for quite small companies, Nasdaq First North and Akitetorget.
Akitetorget is somewhat strange, I think it is formally not regulated as a stock market, and that the companies listed there does not need to be "publicly listed". Like the grey markets for non-public companies I've read about, but perhaps less grey.
First North however is a "real" stock market that works the same way as its big brother Nasdaq OMX, but with lesser demands and cheeper entry.
Still, even First North is probably to expensive to list a startup right at incorporation.
I think the biggest hurdle to overcome is to balance the requirements of public disclosure and quarterly reports etc. with cost of listing. If almost no requirements would be set, it would be very cheap to list but also very hard to safely trade on the exchange (alá ICO's). On the other hand, with too stringent requirements it would be too expensive to list as an early stage startup.
I think there's resistance to public trading however because it generally requires more structured accounting (GAAP vs cash accounting), and invites external scrutiny and pressure.
aren't all these good things? Prevents both scamming, as well as ensuring that the founders take a careful look at their business, and that it isn't purely fueled by stock/investment, but is generating profit?
External scrutiny and pressure is a mixed bag. It probably reduces the chances of doing something stupid that destroys the company, but it also reduces the chances of doing something stupid that changes the world.
> Through brand new listing standards, software tools, and advocacy, we’re reinventing the public company experience with novel approaches to executive compensation, shareholder voting, disclosure practices, board and stakeholder policies, and community governance.
None of this reduces short term trading. Even if it did, reducing short term trading would make for a less efficient market and prolong bubbles.
Currently, an investor who owns one share for a month, or even a day, has the same voting power as someone who has owned a share for years. Mr. Ries wants what he calls “tourists” — short-term shareholders — to have less voting power than long-term shareholders, whom he calls “citizens of the republic.” Over time, shareholders of companies on the LTSE would gain more votes based on their length of ownership.
Mr. Ries also takes aim at compensation plans. He wants companies that list on his exchange to have stock vesting programs of at least five years and recommends 10 years, even for executives who leave the company.
This is from: https://www.nytimes.com/2017/09/18/business/dealbook/ipo-cha...
The obvious theory would be "they think they're a scam, and they don't want other people to realize that".
Actually, I expect them to give birth to a few amazing unicorns (not value wise but in terms of innovation), but at the same time it will take some time before there will be any visible results.
But I wonder about their approach -- couldn't any public corporation, any time it wants, put long-term goals into its "constitution" or whatever you want to call corporate goals? Though perhaps their exchange will eventually put pressure on corporations to do so.
How is a post that talks about a seven year project not long term enough for you?
More like Zero Liquidity Stock Exchange am I right?