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Comment by fastball | Hacker News Reader

I have a question: what exactly is different? Wasn't clear in the blog post.

Do you prevent day-trading or something similar?

We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

I know that doesn’t sound super sexy but we believe this is a high-leverage point for reforms

We will have more to say on reforms that relate to reading in the future, but we don’t limit the ability of “tourists” to trade in and out of stocks as normal.

Will those corporate governance guidelines be publicly available? Are shareholders able to influence these guidelines at all?

Yes all of our listing standards are publicly available both on our website and in numerous legal filing

Yes, we believe in the role of long-term shareholders in corporate governance

What do you define as long term? At some point, the best answer for longevity is for a company not to exist at all, given that the purpose of most companies is extraction, or some sort.

We will endeavor not to list such companies

> We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

How will you handle companies that eventually go against the required guidelines?

Could a company become permanently unlisted? And how would that affect any shareholders of the company who purchased through LTSE?

Yes, we have the power to delist companies, although I hope it never comes to that.

Shareholders would have their ownership protected in that scenario (as they still own common shares), same as any other company who was delisted from an exchange

>We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

I've heard many a company say one thing and act another. How will this be different? Will delisting be the repercussion of short termism?

Yes, all of our standards are enforceable, that’s part of the responsibility of being an SRO. When a company makes promises as part of listing on LTSE, the public can believe them

Nothing here seems very "concrete" TBH, it all seems quite "hand wavy" and vague.

Can you provide any specific examples of standards that could be enforced, and how?

https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf

Let’s say the largest flagship company on LTSE decides to move to short-term governance strategies.

How can investors be sure this company really would be delisted, even if it’s the company that makes LTSE the most money?

Everything we do is completely transparent. If a company deliberately violates the policies they have publicly adopted, not only would they be delisted they would likely be committing securities fraud. I think it's likely you'd hear about it.

You imply rather than state directly that you fear our regulatory decisions would be influenced by our commercial interests, so just to address that part, we have an extensive set of checks and balances in our own corporate structure that double-buffer these decisions.

Thank you. I thought I was being direct but I’ll try to be more so.

Just to be clear, I don’t doubt you personally in any way, it’s more that I think it’s an enormously difficult problem to get a group of people to take action on something when they will receive a lot of money by NOT taking that action.

More specifically: companies are already supposed to take the wishes of long-term shareholders into account, and boards are supposed to enforce this, yet in practice this doesn’t happen much because, well, incentives dictate otherwise.

Can you share some of the checks and balances that would stop the exchange itself acting in its controllers own short-term self-interest?

What happens to the shares of a company that someone buys on this exchange if it is delisted? Do they have to then somehow sell them on another exchange? Wouldn't delisting harm the value of those shares, if they can be sold elsewhere? Wouldn't that cause serious financial harm to holders of those shares, who bought things on the LTSE expecting long term viability?

I think part of the idea is between reporting requirements & articulated statements about what goes into that reporting, by failing to report or failing to live up to those goals, you get to use the existing teeth (and defenses) associated with investment fraud. For any constructable issue rather than just purely quarterly financials, you can hold the company to account, and protect decisions that might be for some new goal in their bylaws [but also might appear against an immediate short-term financial gain].

My insight from watching Eric give a talk about the exchange:

https://longnow.org/seminars/02020/feb/24/long-term-stock-ex...

What does that mean concretely? Will earnings reports still be quarterly? I guess I'm trying to figure out why the exchange has to do anything here. There's plenty of investors and companies that think long term with BRK and its investors being the most prominent.

Digging a bit more, on the investor side, there are value investors who look for solid, if unspectacular businesses at a price point and buy and hold over long periods of time.

On the company side, there are exceptional founder run businesses like Amazon, FB etc. that don't care very much what things look like in the short term (Bezos claims he's willing to be misunderstood for long periods of time for example).

I’m not quite sure how to answer your question. Clearly there are long-term investors and companies in today’s markets. I think there would be more of them if they had a platform conducive to their philosophy.

>Clearly there are long-term investors and companies in today’s markets.

That's not really an answer to the question - so how do you define long-term, and how do you take reports? Are they still quarterly reports? Or are the reports longer-term? How do companies prove they're long-term to interact with your platform?

You haven't really talked about the concrete definitions or parameters around 'long-term' in this thread. Please do, it would be nice.

Quarterly reporting is an SEC requirement, so we don't affect that. We do require certain additional reports be filed on an annual basis.

Companies prove their long term by adopting policies responsible to our long-term principles. The way this works is spelled out in a lot of detail both on our website and in our regulatory filings. Here's more of a layman's overview: https://longtermstockexchange.com/static/principals_for_lt_s...

Thank you. Have you discussed possible perverse outcomes to (D) and (E)? If so, what negative outcomes have you been able to foresee?

It seems that perhaps you have some idea of what these perverse outcomes look like. D) seems to be "a company reinvests in its employees (training, etc) and E) is someethign like "a Company rewards employees and stakeholders for long-term company success."

What does the perverse scenario look like for you?

I legitimately don't have any in mind. I just have zero faith in humanity, and assume loopholes will be exploited to follow the letter of the law, but not the intent. I was wondering if they've thought about that and what his thoughts were about it.

Edit; The only one I can think of, when it comes to rewarding employees is what if a company uses contractors (or gig workers if you use those words), and therefore not defined as employees?

You don't even need to say it like that: you have zero faith in humanity. You should have some faith, we've performed reasonably okay over time. The problem is thus: over a long enough time period, given any individual's inert desire to benefit from something, it will be attempted if not by one individual, then by another. Wanting to define, in law, through enforcement, terms of ethical conduct and its breach is reasonable and necessary herein where capital is involved.

I'd like to see a market for solely worker-owned cooperatives, in which stock dissolves over a fixed time-period, 5 years(restaurant)-500 years(asteroid mining). "Dissolve" being essentially buybacks that occur, bending based on performance. Then again, I'd like to see capital dissolving, normalizing, over 100 years, giving capital the property of entropy, redistributing it all, but very slowly over the span of a bit more than a human lifetime. This capital would be more valuable than any world currency.

In the SEC filing they say that companies will be required to issue long term policy documents and that their progress should be measured in Years or Decades and with long term compensation plans. The compensation piece seems like the most concrete requirement given that most companies will say they have long term plans. But those companies also reward executives based on stock price and earnings in a quarterly/yearly intervals, not decades.

We don't allow companies to list if all they have are vague plans. Each policy requires companies to make structural, externally-verifiable commitments.

Sounds Great! Thanks for Lean Startup it helped save me from spending years developing a product without a market.

> Clearly there are long-term investors and companies in today’s markets.

As the age-old principle goes: could you please name three?

Examples would help us understand the idea more thoroughly.

Institutional investors like pension funds have a longer term focus. If this platform succeeds, it might encourage more institutions like it.

> What does that mean concretely?

I noticed there doesn't appear to be tangible answers to this anywhere (including in the reply you got to your comment). Curious to pitch a supposed long-term stock exchange without anything meaningful to lure listings to it other than vapor statements.

I'd bet it's because they can't set any strict upfront requirements. They won't be able to get the listings they need if they do it, the interest won't be there. So most of what they're going to try to do is espouse the mission goals, hoping over time they can gradually implement those controls.

Agreed. Just like everything else, the ideas hold more power based on who they are coming from. Eric is a stellar individual with a trail of success behind him - and I'm not taking anything away from him with this comment, but if I were to go to a set of worthy investors and corporations pitching this idea - I'd be laughed out of the room as naive.

I don't know if this is as true as you think. First of all, I've been laughed out of a lot of rooms for pitching this idea. Hundreds, by now.

Further, although many VC's are indeed herd animals as you seem to suggest, there are a few bold ones who genuinely hunt for new and radical ideas and would be willing to back a first-time founder - if you're willing to do the work.

Thanks for the response Eric. My point is about the audacity of the idea. Specifically, to open a new financial market place of the magnitude it would take to be viable, one would need - 1. significant experience in the space to understand the nuances, what's working, what's broken, etc. 2. Sizable investments and talent for operations (scale, uptime, compliance, etc.), 3. A well thought through G2M strategy (including derivatives, indices, options, day trading, HFT, etc.), 4. A broker network, 5. A true, unambiguous differentiator that is viable, measurable, enforceable, and timely.

I'm not sure I had any of those 5 things when I began this journey, tbh

I see this criticism a lot in the various threads, but I don't really understand it. As a stock exchange, we are strictly regulated. We aren't allowed to make vague claims that are not backed up by regulatory filings, all of which are publicly available both on our website and at the SEC. For example (from least to most detailed):

https://longtermstockexchange.com/listings https://www.sec.gov/rules/sro/ltse.htm https://longtermstockexchange.com/static/principals_for_lt_s... https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf https://www.sec.gov/rules/other/2018/long-term-stock-exchang...

Given that companies like Uber, which are not only unprofitable but don't even have a clear path to profitability at any time horizon, trade at fairly high valuations, what's the basis for the belief that investors are irrationally focused on short-term results? Should Uber actually trade at higher valuations than it does today? Why isn't some rational subset of investors capitalizing on this opportunity?

I don’t think multiples are the issue. The question is: are companies set up to support a philology of long-term decision making? Talk to almost any middle manager in any public company in America if you are confused about whether this is the common case today

If investors are not irrational about the long term, then I don't see how there can be a problem. Prices will correctly reflect long-term expectations, and managers who are paid in options/hold equity will face the right set of incentives. If managers focus on the short term it's probably because it maximizes long-term value.

There's a lot of literature on this topic, and many empirical studies that call these assumptions into question. Just picking one at random from the set I've seen recently: https://www.ey.com/Publication/vwLUAssets/EY_Poland_Report/%...

It's kind of interesting to think about growth profiles over time. To grow over some long term span, like say 10 or 20 years, did the growth all take place in the last 90% of the interval or evenly throughout. I guess the premise of a company growing throughout all the short intervals across a long span of time is a good way to know at least something will be there down the road that's not too far off the mark from where you'd like to be with your investments. I'm trying to think of the reconciliation of short term vision with any wisdom contained therein with respect to long term gains.

What evidence do you have that investors are not irrational about the long term?

> I don’t think multiples are the issue

If multiples aren't higher, why would a company list on your exchange versus on the public market?

Companies care about many things other than mere multiples. And there are many factors that influence multiples. So I think it's accurate to say that companies consider many factors when deciding where and how to list.

Right, then, what are some of the factors that would make it preferable to list on the LTSE?

This might not be a great comparison, however, when Japan was ascendant some of that might was attributed to their “long-view”. Companies on the nikkei were government backed and didn’t have the same quarterly results demands seen in other exchanges... and that was proven right to about the mid-90s. Then it was revealed that those companies on occasion invested in areas they had no expertise or had poor returns. Not that the current system of chasing quarterly results is good, but how is the Japanese experience avoided?

As with everything, there is a delicate balance to be maintained. Toyota is an interesting example from the Japanese context. Luckily (?) things are today so out of whack that I don't think we have to worry about overcorrecting - for now.

Will the exchange impose any restrictions on the buying or selling of stock?

We offer the same level of liquidity as incumbent exchanges, per SEC requirements

Why is a new exchange the right model for this rather than lobbying for different SEC requirements?

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