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Comment by jwr | Hacker News Reader

I often think that our constant obsession with GROWTH hurts other, potentially worthy goals.

If a company doesn't show growth, it is quickly labelled as "in trouble" or "dead". Why? Why can't we have an Apple that is the size it is now, but concentrates on making better products?

If you look at the last 10 years of Apple products, it is clear that many decisions were made to favor growth (e.g. revenue) over customer satisfaction. Their products are often made worse and delight us less, because someone decided that growth is more important.

I run my own business and growth is not my #1 goal. But I have the comfort of being able to make that decision, as it is my (self-funded) business.

I wish we could ease up on the pressure to grow.

EDIT: the replies are completely missing my point. No need to explain how the stock market works. Just please consider, for a moment, a world where companies don't have to prioritize growth over everything else.

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> If a company doesn't show growth, it is quickly labelled as "in trouble" or "dead". Why?

Because of the stock market. Current prices today reflect growth expectations. That's why people are paying so much for Tesla shares – they are trying to get a 'bargain' today, assuming the company will grow to immense numbers in the future. If that doesn't work, share prices will implode and be adjusted to reflect things like revenue and inventory. They will be valued just like the bakery next door.

Private companies also have an expectation of growth but, until they start issuing shares, the expectation is nowhere near as high.

Of course, no company can keep growing forever. At some point reality catches up and they will either slow down growth significantly, or they just crash under their own weight.

I disagree 100% on this.

Growth is what happens when there is technological change.

In certain circles there's this idea that technological growth requires more damage to people and the environment, but that's exactly wrong, and the past decades have shown it to be a competent fallacious assumption.

We need dramatic, massive growth of new technologies to supplant the damaging ones. Confusingly, some people refer to this as "degrowth", but that's why growth/degrowth is a barren framework for analyzing the world. Because growth is not one thing, it's a high-dimensional direction of many many different attributes.

What’s growth to a subway/underground railway company, or even, a cargo rail company?

It's not about growth, it's about productivity. All tech innovations increase productivity.

Growth to a railway is better logistics so things are directed more accurately, more energy efficiency, more efficient use of labor, etc. They can also increase their sales, but I think your comment was implying those are stagnant industries.

All technology is ultimately making improved outcomes at lower cost. That is what technological advancement is.

You made up a railway logistics company instead of addressing the point about a commuter subway. There is no need for growth in a subway unless they are adding lines or stations. If there is constant growth outside of that then it's just hurting consumers.

Until the growth of population slows down, a commuter subway that isn't iterating and improving capacity will get worse too. Just look at New York pre-covid. The subway was literally and figuratively collapsing under the growth in passengers.

If there is the profit test then the subway operator will always strive to continue maximizing revenue while minimizing cost. That could be automated trains without drivers, making the trains more reliable to encourage more ridership, marketing events like free weekend riding, and all sorts of things.

It is the government-run subways that are stagnant, smelly, late, broken down because no one in the entire org has any incentive to do anything other than the bare minimum to avoid getting fired.

Except government run subways work well in nearly all countries except the United States. It's not always a red versus blue issue, but other countries don't have to constantly fight against one party that gets into government to prove government doesn't work by making government worse.

Total number of people-rides delivered within x% of scheduled time with y% loss rate.

Total number of TEU delivered within x% of scheduled time with y% loss rate.

If the company is doing a job well, these should go up over time. Sure, you can add on more conditions (i.e. with z max pax/sq.m., with p max wait to board) but ultimately, if the thing is doing its job right, there should be growth. It should be getting more people to places.

Every successful subway system shows growth. Taiwan Metro and TfL are both well renowned and both show continuous growth.

Growth is Good.

You're using the term "growth" in an entirely different manner than the person to whom you are responding, which is funny because you note the word has multiple dimensions yourself. They are talking about market growth and the raw obsession with profit. $40 billion dollars in ONE QUARTER with a single product line.

You are discussing technological development and advancement, which should be talked about separately from financials. Endless drive for profit and economic expansion seems to be an end to itself, whereas technological advancement for lower pollution and greenhouse emissions are necessary.

I think in the context of these discussions, growth is one thing: "The increase in the inflation-adjusted market value of goods and services produced over time." (e.g. EBITDA of a company or GDP of a country).

I don't think anyone is arguing against the word growth in a general sense... Clearly we can "grow" our knowledge, or undertake "personal growth", or whatever.

The people who argue against "growth" are, in a way, agreeing with you: They're saying "GDP is a terrible metric to optimize and we should find a way to stop optimizing for it. It creates perverse incentives. Digging oil out of the ground and burning it to make a ski-slope in the desert increases GDP. Selling houses to each other for ever-increasing prices increases GDP. Those things suck.

They're saying that perhaps we could make the world better by changing the metrics we optimize for... Perhaps that's population happiness, quality-adjusted life years per person, projected climate change impact, world biodiversity, etc etc. And they're saying that maybe if we optimize on those things, GDP is going to have to drop. And that should be OK. But with the system we have built, it's not OK. So we're in a bind.

I wish we could just do it for minimum levels of food and shelter at least. Lack of the most basic security creates fault lines throughout all of society.

That plus carbon emission. The result won’t be the perfect indicator but we really need a simple numerical indicator for people to care, sadly.

> If a company doesn't show growth, it is quickly labelled as "in trouble" or "dead". Why? Why can't we have an Apple that is the size it is now, but concentrates on making better products?

The company is owned by shareholders who want growth or a massive dividend. If AAPL can't grow then return profits to shareholders through stock buybacks or increased dividends.

> I run my own business and growth is not my #1 goal.

If you own your own business then do what you think is right for you. As an AAPL shareholder all I want is increased value in my shares.

You and the gp are both 100% right. That is the incentive structure and it is malignant.

> As an AAPL shareholder all I want is increased value in my shares.

“If you want me to do things only for ROI reasons, you should get out of this stock.” -Tim Cook

The pressure to grow stems from the massive amount of wealth that can be harvested from growth. The only way to curtail that is with economic policies that punish investors for getting too rich too quick, but almost all such proposals are instantly dead in the water as soon as anybody speaks their names.

+90% tax on capital gains and taxes on loans taken out against capital. Only limited exemptions for retirement funds etc.

All those billions would move out of the US into other countries where the tax regime is more favorable.

Those companies are in the US for more reasons than favorable taxes. Try moving a company to China and see how it goes.

Try moving to Luxembourg, Ireland, Switzerland, the dozen of small islands with special states from UK, US, and some other countries, Singapore... Plenty of choices and its already the case. Look at Cargill legal structure (e.g. search Cargill International Luxembourg for a good laugh)

The US can impose this on other countries easily. You don't comply you don't get to touch the USD, no bank can survive without it (at least right now). The OECD recently even got Switzerland to agree on the global minimum tax.

Sure you can still go to Russia or China but these companies really want to take that risk?

There’s another aspect to this and that’s the iPhone is Done. Finished. Completed.

I recently switched from a 4 years old X to and iPhone 13 Mini and to be perfectly honest I can’t experience any difference, it’s basically the exact same phone in a smaller form factor. Hadn’t it been for the size of the X being an issue, I probably could’ve stayed on it for 4 more years.

Great from a consumer (and environmental!) standpoint, not so great from a quarterly report standpoint.

If you're not busy growing you're busy dying. Staying stable in a world where everything else changes doesn't sound any easier than growing to me; when you become irrelevant you don't make steady flat profits, you just die.

Ignoring the “how publicly traded companies equities function” aspect. What would be the medium to longer term outcome of Apple “making better products?”

In an open market I would assume that better products drive new users and/or increased revenue. The way Id measure that is probably something like units sold, ASP, LCV, etc which should all feed back to top or bottom line. And if revenue or profit is increasing id call that … growth?

So it seems a bit tautological. UNLESS you mean to measure better products some way besides revenue, units sold etc. And then Im really interested in what that quantification would be, and why it would lead to different outcomes.

> ...Why can't we have an Apple that is the size it is now, but concentrates on making better products?

> If you look at the last 10 years of Apple products, it is clear that many decisions were made to favor growth (e.g. revenue) over customer satisfaction. Their products are often made worse and delight us less, because someone decided that growth is more important.

The shareholders care about making money and little else: they don't care about releasing better products. If worse products will make them more money, the shareholders will demand the company make its products worse, and they'll get their way.

“Growth without purpose is the ideology of the cancer cell” is one of my favourite quotes by the exceptionally quotable Edward Abbey.

And I tend to agree with you that we would be better off if companies could define “enough” and maybe disband at that point rather than stagnating.

The thing lurking in my mind that maybe makes this a pipe dream is the Red Queen hypothesis.

I agree with your comment but I think it is out of place here.

I skimmed the article and it doesn't seem to suggest apple is in trouble, or that it is dead, it is merely commenting on why certain revenue figures are lower year over year.

In fact, it seems explicitly to convey that the sky is not falling.

Go find me a 'best in class' product that has sustained that position without growth.

Bugatti?

Bugatti can only exist in it's current position because it is the halo marque of the Volkswagen group, it is almost certainly a company that loses money given the extremely limited market to which they target and the amount of investment and development that goes into their products. I think it's reasonable to think that the various bankruptcies of the prior companies which bore the name are emblematic of it being unable to exist by itself.

EDIT: I've just realised that VW spun off Bugatti - my comment is no longer valid.

Bugatti sells less than 100 vehicles per year.

That sure sounds like a “best in class” company without growth to me!

That's all a growth-less company can be. A simple niche, with a very specific audience that knows exactly what they want. It's the exception that makes the point. You can't apply that to a company like Apple.

Well that's not entirely true. AT&T is basically a zero-growth company as well. And they trade at a P/E of 6.7. A similar valuation for a zero-growth Apple would be about $40/share.

I think anyone who would accept the statement "It is good that there are perpetually growing companies" will also accept the statement "It is good that there are perpetually growing companies and exclusive-luxury-segment non-growing companies".

Yeah, you’re probably right.

It's not people demanding growth, it's the companies claiming they are growing and the expectation that sets.

Nothing wrong with a steady state company. There are plenty of them. But that has implications that companies need to live with.

This was one of the top reasons IIRC that made Jonathan Ive left the company. Before Tim Cook was the leader of the company, they were not only technically innovative, but innovative in a more global and universal way.

This is what dividends and other similar instruments (e.g. stock buybacks) are is suppose to help massage. IE growth is not 10% its 5%, but we are issuing x additional dividends per share or we're buying back x amount of stock and such. At least, in theory functional market capitalism.

In practice, I agree with you, even when a company is treating investors well via dividends they still get hammered on "slow" growth.

Lets be clear here though, Apple is not contracting in their size, they're simply just not growing at the same gangbuster rates they have been for over a decade. Can't last forever

Interestingly, Apple has such an enormous cash hoard (tens of billions, iirc?) that they could one day announce that they will no longer prioritize growth since it doesn’t make sense at their size… and merely dedicate to a reasonable dividend instead. Bam, suddenly their stock price soars even more, finance folks hail the move, and other companies rush to mimic it (to lesser success).

Dividends are subject to double taxation and typically avoided. In lieu of dividends, you now see more stock repurchase plans.

Same idea though. Edited for clarification.

It boils down to opportunity cost, established in the cost of capital.

Apple is valued at $1T and all the nice things that come along with that (huge salaries) only if they deliver growth.

It's 100% fine to not have growth, but then they have to get a different set of investors (or buy themselves out) etc. where those expectations are different.

With 0% growth their equity price is near 0. Which is again, fine, if those are the terms being made.

But it means less money for speculation, investment, R&D, expansion etc..

Every investor is allocating capital based on the opportunities in front of them.

If some other team can consistently do better, well, money will follow that.

To a great extent - we want this.

Usually corporate growth means 'surplus' for the rest of the economy and especially consumers.

For every $1 in APPL profits, probably they have created more than that in surpluses. In other words: our lives are materially improving, specifically by more than we are giving apple as consumers. Hopefully.

These economics don't always work well, esp. when there are monopolies or for where economics work differently, like healthcare. (FYI capitalism and certain fundamental realities exist in Healthcare, just that the context is different).

It remains to be seen if Apple will find other ways to grow, my bet is they are not out of tricks just yet.

> With 0% growth their equity price is near 0.

Oh. My. God.

Yes, that's how it works.

How much would you pay for something that has X% (where X > 0) risk, and 0% growth?

You would likely pay $0.

Because you can put your money in a 'risk free' investment, like a bank account, and get a minimum return.

There is the 'enterprise value' which would include assets (i.e. maybe Apple has $20T in cash in which case, obviously their stock is worth whatever their assets are worth, but at some risk-premium discount). Most companies have some assets but usually not a ton relative to their value.

Of course, 'risk free rate' may be negative (not common, but could happen), and so 'losing money' on a stock that doesn't grow would be better than keeping it under your mattress or in the bank, but we're not there yet.

But otherwise, a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money.

> How much would you pay for something that has X% (where X > 0) risk, and 0% growth?

Surely at least book value, in case that risk is not infinite?

> a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money.

A company is a money making machine. If it doesnt work it produces each year the same amount of money. How can that be worthless?

You seem a lost cause, but for the benefit of bystanders I'll just clarify that zero growth doesn't mean zero return.

A non-growing company with annual profits around $100bn is obviously worth much more than $0.

I'm doing just fine.

Go ahead and invest in companies with 0% growth and see how well you do with your retirement.

Yes, companies can have a positive 'book / enterprise' value that must be heavily discounted by all kinds of risks, and future 0% growth cash flows even much heavily discounted, in which case, theoretically, yes, there are a few companies around that might have giant pools of liquid assets that might be worth something ...

... but in general, companies that don't grow are worthless.

Owning a quickly evaporating pool of cash vs. one that is growing, compounds quickly over time.

I think you have mistaken “growth” to mean “stock growth”.

The rest of this thread is talking about y/y revenue and profit growth.

If profits are sustained at $100 BB annually every year perpetually, and I own 0.01% of the company. They can afford to (and can be made obligated to) pay me $10 MM annually through dividends or equivalent stock buy backs.

This is a useful company, and I would buy its stock for the right price.

What's the point in buying shares of a company with no possible upside? That's not a useful product for a retail investor, and it's not usable for stock compensation for employees either.

In this example by the parent commenter the $100 BB divided up as dividends or stock buy backs is useful regardless of y/y revenue or profit growth.

That's not useful to a retail investor though. You know its exact value and so does whoever's selling it to you, meaning you can't get a bargain on it.

It might be useful if you got it for free, but in that case you should sell it to a bank or someone who can actually use a fixed-income asset.

Remember that this subthread started when someone claimed that « With 0% growth their equity price is near 0. »

Income

Tax-inefficient income with no inflation protection. Unless it's a whole small business you're buying into, government bonds are better.

Because a company has more downside risk than government bonds, the income they produce would need to be higher. Probably would look very similar to other corporate bonds which is basically what zero upside stock would look like.

> What's the point in buying shares of a company with no possible upside?

As the Beatles would say, to get you money to buy you things.

A black box that spits out one dollar bill (after tax, if that’s your concern) every hour is a useful product to anyone even if there is « no possible upside ». Don’t you see the point in getting one if the price is right? Wouldn’t you pay $10000 to get one? $1000? $100? $10? $1?

> With 0% growth their equity price is near 0. Which is again, fine, if those are the terms being made.

> But it means less money for speculation, investment, R&D, expansion etc..

Well, they're still making billions in profits. Their stock price won't affect that.

if I'm an investor, then i want that the company is making me more tomorrow than today. I cannot eat customer satisfaction.

that's how it works.

You can eat fat dividends though. I haven't heard any decline in the share buyback program.

Not necessarily. A share that keeps it value and reliably pays out steady dividends just above interest rates still is an attractive investment for some

Apple also doesn’t need that many investors at the moment, so why should it care much about what investors want?

Because investors own apple, so apple has to do what investors want. Or more specifically the CEO has to do what investors want otherwise they fire him and find someone else who will do what they want

Replacing the head honcho doesn’t guarantee that share prices will start growing rapidly. It’s quite possible that no CEO in the world can accomplish that.

Also, as I said, share prices don’t need to go up to make investors happy. for example, the typical pension fund is perfectly happy with an investment that will never win them the jackpot, but also is extremely unlikely to lose them everything, and very likely will regularly pay dividends.

So, a majority of Apple’s shareholders may be perfectly happy with the status quo.

> Or more specifically the CEO has to do what investors want otherwise they fire him

The board is the one that has the power to fire the CEO not shareholders.

And yes shareholders are involved in deciding the composition of the board. But unless there is some egregious governance issue or a complete breakdown in financials no one is going anywhere.

Then don't invest in a company that has an agenda different than yours. You can have a company that is doing fine, investors are not losing money but maybe not making as much as someone else thinks they can. Along comes the activist investors that then start forcing the company to change to meet their exepctations. Is that really how an investment in a company should work rather than someone investing because they think the company is doing the right thing?

Or, you invest in companies with reasonable dividends, instead of just hoping the price always goes up.

U.S. tax policy favors capital gains income over dividend income, provided that you're not a short-term trader. People overlook this massive thumb on the scale when pondering the trend toward share buyback programs rather than dividend payments.

Can you explain this more? Is this a recent (~decade) thing? I remember my grandfather investing in companies with a solid dividend as much as share price growth; has something fundamentally changed?

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_Unite...

For over a hundred years now, realized gains (i.e. the difference between what you paid for a stock and what you sold it for) have been taxed at different rates depending on how long the investment was held.

Over the decades, the definition of "long-term" and it's special treatment has jumped around ALL OVER THE PLACE (i.e. 6 months, 2 years, 10 years, etc). During the Reagan administration (believe it or not), the special treatment for long-term capital gains was abolished. It was brought back around the turn of the century under Clinton (believe it or not).

So it's possible that a middle-aged investor during the 1980's and 1990's grew accustomed to the conventions of an era without a long-term capital tax rate. And never adjusted their mindset or investment strategies when the long-term rate returned. However, the 80's and 90's are a historical aberration.

Although the definition of "long-term" has been one-year for quite awhile now, the special rates for long-term gains were continuously lowered during the 2000's. So that it's now EXTREMELY more advantageous to accrue long-term capital gains rather than dividend income. Those rate changes have been one driver for recent share buyback programs (the far greater driver has been the availability of cheap money under post-2007 Federal Reserve policy). However, it's worth noting that even the lowest capital gains rate today is higher than when the tax was first introduced.

Exactly, as an investor I want the companies I invest in to ultimately eat all of the other companies. If it's not growing, the value of my stock is not growing.

This isn't public transportation.

As an investor why are you buying individual companies instead of index funds so you don't have to care about that?

LOL - because a bundle of companies has a different risk/reward profile?

I only bet on high-growth companies. I'm not interested in making money the slow-and-steady way.

> if I'm an investor, then i want that the company is making me more tomorrow than today.

That is a very common sentiment, but badly misguided. What you should want as an investor is a good return on your investment. You can't eat customer satisfaction, but you can eat profits and profits can be produced by satisfying customers.

In fact, the only thing that should matter to you as a rational investor is the price of the investment relative to the profits you expect the company to make in the future. There is a price at which even a rapidly growing company will no longer produce a good return relative to alternatives, and there is a price at which a company that is profitable but not growing will produce a good return. That is what should matter, not growth per se.

The reason people are attracted to growth is that growing companies are priced with a risk premium that produces outsized investments in some cases. But survivorship bias makes investing in a growing company appear more attractive than it actually is. In the long run, the market incorporates all information into the price and regresses to the mean.

And growth has all kinds of unpleasant externalities too. It really should not be pursued for its own sake.

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