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I think this is a perfect free market reaction to companies not having voting stock. Last week the FTSE Russell index announced the same thing. As a minor poi

I think this is a perfect free market reaction to companies not having voting stock. Last week the FTSE Russell index announced the same thing. As a minor point, dual/triple class shares are still allowed so FB, GOOG and BRK are still ok. If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. I mean, Google could come right now and offer to buy SNAP for 10x what its currently valued at and Evan Spiegel could say no, even though its almost a certainty that the company will never be worth that much. On the other hand if you don't like the fact that a company goes public and declares that its ownership is in for life no matter what, then you'll probably view this as a positive measure. All this means is that ETF funds will have some recourse to hold management accountable. One thing is for sure now ETF investing got a bit less passive. As a side note on SNAP in particular, Even though the first Lockup has just expired, most employee's, are in lock up due to earnings coming out on August 10th and a subsequent lock up at the end of the month. By mid September we should have a clear picture on just how the markets value SNAP. EDIT To give an example of what companies like SNAP are foregoing by not allowing voting rights is access to, of the 7 largest owners of google stock, 2 are the founders, the other 5 are mutual funds/ETF fund firms.

dvt 9y ago
> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. Totally agree. You can have this kind of dismissive attitude with naive early employees that don't know any better (equity low on the vesting rung, expensive equity buy-outs, unfair vesting schedules, etc.), but this shit won't fly on Wall Street.
dmurray 9y ago
> As a minor point, dual/triple class shares are still allowed so FB, GOOG and BRK are still ok. No, they are also disallowed from being added to the index, but are being grandfathered in.
- kgwgk 9y ago
  And in fact S&P had to change its methodology for the S&P 500 a few years ago to allow for the two publicly traded Google share classes (A and C) to be included in the index.
  - toomuchtodo 9y ago
    At least Google makes money. Concessions can be made when your business is an actual business, not an experiment.
    - prostoalex 9y ago
      It seems like an arbitrary criterion and God forbid Google starts investing into future growth a la Amazon, but you're right, as long as the profits are rolling in, the interests are aligned. When the music stops, it's yet another GRPN or ZNGA.
- valuearb 9y ago
  Note that the differences between Berkshire A and B aren't that great. B's have about 1/6 the relative voting rights per dollar of value. I used to look at arbitraging the A shares into B shares when the relative values were attractive, and voting rights never mattered because I wanted the guy running it to have that power. But maybe that's wrong. I like what the S&P is doing here and maybe they should drop the hammer on GOOG and BRK too. And I say this as someone who has about 2/3s of my net worth in BRK.
  - konschubert 9y ago
    I've been thinking but couldn't figure out how one would do arbitrage there..
    - deleted 9y ago
      [deleted]
  - siberianbear 9y ago
aeorgnoieang 9y ago
> a stock that gives you no profits What stocks 'gives you profits'? > actually no value what so ever other than the greater fool theory Stock gives you partial (and qualified) ownership of the company, i.e. a claim on the company's assets. If Snap owns valuable assets then owning their stock is (indirect) ownership of those assets. No greater fool is required to give them value. Most companies are run as 'going concerns' so a liquidation disbursement[0] to shareholders is probably (?) very unlikely, but its possibility must be the 'base value' of any stock. (Right?) [0]: https://www.wikiwand.com/en/Liquidating_distribution https://www.wikiwand.com/en/Liquidating_distribution
- maxerickson 9y ago
  Any stock that pays dividends using profits pays profits to stockholders. It used to be kind of a big deal.
- codemac 9y ago
  Literally dividends. There was a period of time during which many thought it was the best way to get value out of your investments.
  - komali2 9y ago
    I still think it is...
    - klipt 9y ago
      Buybacks are more tax efficient.
      - prewett 9y ago
        Might be more tax efficient, but I've seen a lot of companies buy back shares when the shares are high. Aside from high growth companies (which aren't usually buying back shares), that's value-destroying. Buy high, then sell low via options... With that kind of buybacks, I'll take the dividends, thanks.
jonknee 9y ago
> One thing is for sure now ETF investing got a bit less passive. Sort of. SPY still invests in the S&P like it always has. Getting entry into the S&P 500 always had some rules [1], this is just one more. [1] http://www.investopedia.com/articles/investing/090414/sp-500-index-you-need-know.asp http://www.investopedia.com/articles/investing/090414/sp-500...
- SilasX 9y ago
  Right but I think the parent's point was that, at the moment you're relying on someone to exercise judgment about which shares are too dangerous to be in the index, that's indirectly a kind of active investing. FWIW, I don't think that concern applies here, because it's a judgment about share uniformity, not performance.
  - jonknee 9y ago
    Sure, but that has always been the case. I would buy the argument if it was a change by a specific S&P 500 ETF, but since it's the index itself it doesn't seem like anything is changing.
    - SilasX 9y ago
      Then I still think you're not appreciating the point: it would, in effect, be active investing if you bought an "index fund" that tracked the "JimBob index of stocks that JimBob thinks are good buys". It's irrelevant that "hey, I'm just following the index", since the index is inheriting an active manager's judgment. The more such judgment is exerted, the more the index becomes someone's active management. At some point, it is not really an index fund (as properly understood), but an actively managed fund (albeit low-cost). The OP's concern, then, was that making this kind of decision about "man, these multi-share stocks are too nutty" is getting close to looking like active management rather than some robotic, mindless tracking of some mostly-objective market measure.
      - bradleyjg 9y ago
dragonwriter 9y ago
> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. The fundamental value of a stock is in the claim on the assets at dissolution (dividends are just partial dissolution, and voting rights are just a way for you to have a—very small, for most investors—protected role in having a voice in determining whether the company increases or decreased the value to which you would be entitled if it dissolved.)
- kgwgk 9y ago
  And having a voice on the act of dissolution itself. Without vote your claim is always dependent on decisions out of your control.
- chatmasta 9y ago
  Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)? I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock. There needs to be some consideration of probability of bankruptcy versus probability of sale (versus probability of no dissolution at all), right?
  - dragonwriter 9y ago
    > Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)? Any dissolution, in principle, though in a dissolution forced by bankruptcy, there are unlikely to be net assets to distribute to shareholders. > I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock. Technically, you have to consider all possible dissolutions along with their relative probabilities, since stock isn't a claim on assets restricted to any particular dissolution.
    - 9y ago
secabeen 9y ago
> I mean, Google could come right now and offer to buy SNAP for 10x what its currently valued at and Evan Spiegel could say no, even though its almost a certainty that the company will never be worth that much. Even worse, Google could offer to buy SNAP by only purchasing the shares that Evan Spiegel holds. If the Class A shares have no voting rights, and you want to buy the company, why even tender to buy the Class A shares? Just buy Evan's shares, at whatever price you and he agree to, and the Class A shares come along for the ride. Are there SEC regulations preventing a purchaser from doing that? It seems like the SNAP stock classification system is really setup nicely for a hostile takeover that completely screws the Non-Voting shareholders.
- bradleyjg 9y ago
  Not SEC regulations, but Delaware corporate law rules. I don't remember all the details because law school was too long ago. Something to do with the Revlon doctrine, probably.
  - SilasX 9y ago
    Based on my skimming, Revlon is about directors' obligation to go for a high buyout price in sinking-ship conditions, rather then dig in their heels and poison-pill. The GP's point was about being able to buy control from buying only a tiny sliver of the shares, AIUI. Edit: Or your point is that the share A class is the poison pill? I'm in over my head here...
- lmm 9y ago
  > If the Class A shares have no voting rights, and you want to buy the company, why even tender to buy the Class A shares? Just buy Evan's shares, at whatever price you and he agree to, and the Class A shares come along for the ride. The Class A shares' owners will still own them, they'll still have rights, the company directors will still have obligations to them. If the company were to sell its business then the cash from that sale would belong to the company. If they then wound up the company they would have to distribute the company's assets (i.e. the sale cash) evenly among all shareholders. If they tried to sell the company for a low price and were paid separately by the buyer there are laws about that.
ThrustVectoring 9y ago
How is this a perfect free market reaction? It's explicitly a reaction not by market participants, but by the relatively minor players who make up part of the rules of the game. The "free market reaction" is that if these capital structures suck, active investors don't buy them or short them, and the stock price goes down. That is, if shareholder control was actually valuable, it'd command enough of a premium to discourage SNAP's behavior.
- macspoofing 9y ago
  >How is this a perfect free market reaction? Because it's a private organization making a free choice, a choice which you can ignore.
  - noobermin 9y ago
    When is "free market" synonymous with private choices? This sounds like a bad conflation.
    - jacalata 9y ago
      It's not synonymous but a free market is built on the ability for private parties to make their own choices.
      - acjohnson55 9y ago
        And a whole bunch of other criteria. I the term the OP was looking for was just "market".
    - macspoofing 9y ago
      Since always? Your definition of 'free market' is perfect competition[1]? [1]https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition
- pishpash 9y ago
  Why don't you just buy SNAP directly? S&P 500 is just an index, like a phonebook. They can list or not list whatever they want, and ETF's can follow or not follow those indexes.
TAForObvReasons 9y ago
The indices should have given a grace period rather than a blanket grandfathering of existing multi-class-structured companies. It arguably discourages further participation in the public markets if a massive amount of control has to be ceded, and it implicitly gives the grandfathered companies a massive advantage (in particular Facebook, wherein one founder has majority voting control despite not having majority ownership)
- kgwgk 9y ago
  Why does it give an advantage (and a massive one!) to Facebook? I see how it gives a massive advantage to MZ. But MZ!=Facebook.
  - TAForObvReasons 9y ago
    When the owners don't control the vote, it's difficult to pass up on short-term opportunities without facing pressure from activist investors and the like. And being able to stay the course is a massive advantage to those companies that can do so without facing corporate attacks. That's a concrete advantage for the long-term prospects of Facebook, assuming of course that the owners' interests are aligned with the long-term value of the company. And obviously having innate demand in the form of index funds is a great advantage that boosts the market cap (as you see time and time again when stock prices pop upon entrance and drop upon exit of indices)
    - kgwgk 9y ago
      When the owners don't control the vote, you have situations like Facebook or Google. It may not be necessarily bad, but the idea of those who have control being the owners is an indication of why it can be bad.
mcguire 9y ago
"To give an example of what companies like SNAP are foregoing by not allowing voting rights is access to, of the 7 largest owners of google stock, 2 are the founders, the other 5 are mutual funds/ETF fund firms." I agree with most of your post, but what exactly are they forgoing? How much of Google do the two founders control? Furthermore, most funds are mostly hands off, and any proposals by any one not in your list are starting out dead.
- lmm 9y ago
  They're forgoing investment from those sources, is the point. If those funds aren't buying the stock, its price will presumably be lower, which makes it harder for Snap to buy other companies, raise new capital, and so on.
Lazare 9y ago
> I think this is a perfect free market reaction to companies not having voting stock. It's probably as good a reaction as we're going to get, but what in the world is free market about it? A free market reaction would be something like: "Active investors decide that Snap's governance will lead to poor outcomes, and avoid it, driving the share price down. Future IPOs pick better governance structure in order to obtain higher share price." Nothing of the kind happened. This is about a single company making a decision, not about markets at all.
- icebraining 9y ago
  So how many companies does it take to be a free market decision? 5? 20? A third? A majority? What if those active investors had taken advice from a single company, like a ratings agency?
will_brown 9y ago
>If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. If anything ICOs would show you are underestimating the demand for meaningless stock.
- pishpash 9y ago
  There is always demand for gambling.
ISL 9y ago
In the case of BRK.B, the shares still have voting rights, unlike SNAP and GOOG (C). I've always been impressed that people would buy GOOG instead of GOOGL at such a small discount. 1.8% is not a lot to pay for voting rights.
- johannes1234321 9y ago
  What could you do with the voting rights? 51% of the votes are held by the two founders. Some more votes are held by people close to them (i.e. Eric Schmidt) This gives very little theoretical and even less practical worth to the votes, whereas the actual worth is benefiting from profits.
  - jondubois 9y ago
    I guess the premium accounts for the eventuality of the founders selling their stock. Their shares will be sold eventually, whether in their lifetimes or after.
    - johannes1234321 9y ago
      While introducing the C class of stocks they made clear that they don't plan to give up their majority any time soon (that's the whole reason the were introduced) thus that premium is far in the future.
- Blackthorn 9y ago
  You don't have any voting rights when you buy GOOGL either, it's a complete fiction. The founders control 51% of the votes. If anything, it's impressive that GOOGL trades at a premium at all.
  - prewett 9y ago
    You absolutely get voting rights, you just don't get voting control. But there are three founders, so they have to vote together as a block to get that 51%. And over time, they may sell some of their voting stock.
khazhoux 9y ago
> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. I guess I'm a fool, because I take zero interest in participating in any of the stocks I've bought, apart from just monitoring the latest price and watching them (hopefully) go up. Voting rights or not makes no difference to me. But I suspect most individual / non-institutional investors are like me. So when I see people get upset about voting rights, it's really just a small number of very self-interested and deep-pocketed parties (activist investors, etc) with their own opinions of how a company should be run, and I don't as-a-rule agree with their opinions.
- prewett 9y ago
  I also never vote (which means my broker votes for me). However, I very much value the ability to vote. Owning stock is about owning the company, and if you have no vote, you have no ownership. If management doesn't trust me with a vote, what makes me think they have my interests in mind? At that point, owning the stock is simply gambling on the price going up. Maybe I get some dividends, too--bonus--but since my share class can't vote, what would make the owners give any dividends to that class, rather than keeping it all themselves? If management wants to keep control, that's great, I'm all for that, but then they should issue bonds, not stock.
- TorKlingberg 9y ago
  Even if you don't vote, the voting rights in your stocks make them more valuable to someone else who would buy the stocks from you.
rudyl313 9y ago
"If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead." While I see you sentiment here, I don't think it's actually correct. Non-voting common stock will receive distributions if any cash is left over after a liquidation and debt, preferred and high-ranked common stock holders are paid (i.e. there is a real claim on assets). Also, with any common stock that doesn't pay dividends, the reason to hold is the promise of dividends (and/or buybacks) when the company does not have any more avenues for investing excess income. This is true for non-voting shares as well.
xadhominemx 9y ago
> I mean, Google could come right now and offer to buy SNAP for 10x what its currently valued at and Evan Spiegel could say no, even though its almost a certainty that the company will never be worth that much Nah you still have to run the company in good faith or you will get sued and lose.
shalmanese 9y ago
We've entered into this topsy turvy world where passive investors are activists and active investors are passive. It's lead to ridiculousless like the current situation and also Aramco's contortions to bend the arm of the LSE for a new listing structure. It speaks to the incredible orthodoxy that's grown up around indexing over the last few years, much of it poorly thought out. After all, if you believe in the Efficient Market Hypothesis, then indexes pulling out of SNAP doesn't hurt SNAP, it only hurts index funds as activists will move to backfill demand. If you don't believe in EMH, then what are you doing buying index funds? Index has become such a hot word recently that it's started to lose it's meaning. Before, a fund operated something like this: 1. You pick a basket of stocks 2. You buy those stocks Now, because "passive" is so much hotter than "active", it becomes: 1. You pick a basket of stocks 2. You contract a 3rd party index provider to construct an "index" based on that basket 3. You buy that index Voila, you're now "passive" rather than "active" but all you've done is stock picking with extra steps. The markets have already responded with price signals and their signal is that voting really isn't that valuable. For all the high minded rhetoric of corporate governance, price is where the rubber hits the road and the results are pretty unambiguous. The whole point of indexing was that I didn't have to make decisions and now I have to make all sorts of decisions over which index provider I pick and what growth I'm missing out on because of arbitrary exclusions to the index. edit: As always, Matt Levine of Money Stuff says this stuff better than I ever could. Read him religiously if you want to cut through all the bullshit of finance.
- SilasX 9y ago
  Thank you! I tried to make the same point with different words here: https://news.ycombinator.com/item?id=14906737 https://news.ycombinator.com/item?id=14906737

dvt 9y ago

> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. Totally agree. You can have this kind of dismissive attitude with naive early employees that don't know any better (equity low on the vesting rung, expensive equity buy-outs, unfair vesting schedules, etc.), but this shit won't fly on Wall Street.

dmurray 9y ago

> As a minor point, dual/triple class shares are still allowed so FB, GOOG and BRK are still ok. No, they are also disallowed from being added to the index, but are being grandfathered in.

kgwgk 9y ago
And in fact S&P had to change its methodology for the S&P 500 a few years ago to allow for the two publicly traded Google share classes (A and C) to be included in the index.
- toomuchtodo 9y ago
  At least Google makes money. Concessions can be made when your business is an actual business, not an experiment.
  - prostoalex 9y ago
    It seems like an arbitrary criterion and God forbid Google starts investing into future growth a la Amazon, but you're right, as long as the profits are rolling in, the interests are aligned. When the music stops, it's yet another GRPN or ZNGA.
valuearb 9y ago
Note that the differences between Berkshire A and B aren't that great. B's have about 1/6 the relative voting rights per dollar of value. I used to look at arbitraging the A shares into B shares when the relative values were attractive, and voting rights never mattered because I wanted the guy running it to have that power. But maybe that's wrong. I like what the S&P is doing here and maybe they should drop the hammer on GOOG and BRK too. And I say this as someone who has about 2/3s of my net worth in BRK.
- konschubert 9y ago
  I've been thinking but couldn't figure out how one would do arbitrage there..
  - deleted 9y ago
    [deleted]
- siberianbear 9y ago

aeorgnoieang 9y ago

> a stock that gives you no profits What stocks 'gives you profits'? > actually no value what so ever other than the greater fool theory Stock gives you partial (and qualified) ownership of the company, i.e. a claim on the company's assets. If Snap owns valuable assets then owning their stock is (indirect) ownership of those assets. No greater fool is required to give them value. Most companies are run as 'going concerns' so a liquidation disbursement[0] to shareholders is probably (?) very unlikely, but its possibility must be the 'base value' of any stock. (Right?) [0]: https://www.wikiwand.com/en/Liquidating_distribution https://www.wikiwand.com/en/Liquidating_distribution

maxerickson 9y ago
Any stock that pays dividends using profits pays profits to stockholders. It used to be kind of a big deal.
codemac 9y ago
Literally dividends. There was a period of time during which many thought it was the best way to get value out of your investments.
- komali2 9y ago
  I still think it is...
  - klipt 9y ago
    Buybacks are more tax efficient.
    - prewett 9y ago
      Might be more tax efficient, but I've seen a lot of companies buy back shares when the shares are high. Aside from high growth companies (which aren't usually buying back shares), that's value-destroying. Buy high, then sell low via options... With that kind of buybacks, I'll take the dividends, thanks.

jonknee 9y ago

> One thing is for sure now ETF investing got a bit less passive. Sort of. SPY still invests in the S&P like it always has. Getting entry into the S&P 500 always had some rules [1], this is just one more. [1] http://www.investopedia.com/articles/investing/090414/sp-500-index-you-need-know.asp http://www.investopedia.com/articles/investing/090414/sp-500...

SilasX 9y ago
Right but I think the parent's point was that, at the moment you're relying on someone to exercise judgment about which shares are too dangerous to be in the index, that's indirectly a kind of active investing. FWIW, I don't think that concern applies here, because it's a judgment about share uniformity, not performance.
- jonknee 9y ago
  Sure, but that has always been the case. I would buy the argument if it was a change by a specific S&P 500 ETF, but since it's the index itself it doesn't seem like anything is changing.
  - SilasX 9y ago
    Then I still think you're not appreciating the point: it would, in effect, be active investing if you bought an "index fund" that tracked the "JimBob index of stocks that JimBob thinks are good buys". It's irrelevant that "hey, I'm just following the index", since the index is inheriting an active manager's judgment. The more such judgment is exerted, the more the index becomes someone's active management. At some point, it is not really an index fund (as properly understood), but an actively managed fund (albeit low-cost). The OP's concern, then, was that making this kind of decision about "man, these multi-share stocks are too nutty" is getting close to looking like active management rather than some robotic, mindless tracking of some mostly-objective market measure.
    - bradleyjg 9y ago

dragonwriter 9y ago

> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. The fundamental value of a stock is in the claim on the assets at dissolution (dividends are just partial dissolution, and voting rights are just a way for you to have a—very small, for most investors—protected role in having a voice in determining whether the company increases or decreased the value to which you would be entitled if it dissolved.)

kgwgk 9y ago
And having a voice on the act of dissolution itself. Without vote your claim is always dependent on decisions out of your control.
chatmasta 9y ago
Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)? I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock. There needs to be some consideration of probability of bankruptcy versus probability of sale (versus probability of no dissolution at all), right?
- dragonwriter 9y ago
  > Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)? Any dissolution, in principle, though in a dissolution forced by bankruptcy, there are unlikely to be net assets to distribute to shareholders. > I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock. Technically, you have to consider all possible dissolutions along with their relative probabilities, since stock isn't a claim on assets restricted to any particular dissolution.
  - 9y ago

secabeen 9y ago

> I mean, Google could come right now and offer to buy SNAP for 10x what its currently valued at and Evan Spiegel could say no, even though its almost a certainty that the company will never be worth that much. Even worse, Google could offer to buy SNAP by only purchasing the shares that Evan Spiegel holds. If the Class A shares have no voting rights, and you want to buy the company, why even tender to buy the Class A shares? Just buy Evan's shares, at whatever price you and he agree to, and the Class A shares come along for the ride. Are there SEC regulations preventing a purchaser from doing that? It seems like the SNAP stock classification system is really setup nicely for a hostile takeover that completely screws the Non-Voting shareholders.

bradleyjg 9y ago
Not SEC regulations, but Delaware corporate law rules. I don't remember all the details because law school was too long ago. Something to do with the Revlon doctrine, probably.
- SilasX 9y ago
  Based on my skimming, Revlon is about directors' obligation to go for a high buyout price in sinking-ship conditions, rather then dig in their heels and poison-pill. The GP's point was about being able to buy control from buying only a tiny sliver of the shares, AIUI. Edit: Or your point is that the share A class is the poison pill? I'm in over my head here...
lmm 9y ago
> If the Class A shares have no voting rights, and you want to buy the company, why even tender to buy the Class A shares? Just buy Evan's shares, at whatever price you and he agree to, and the Class A shares come along for the ride. The Class A shares' owners will still own them, they'll still have rights, the company directors will still have obligations to them. If the company were to sell its business then the cash from that sale would belong to the company. If they then wound up the company they would have to distribute the company's assets (i.e. the sale cash) evenly among all shareholders. If they tried to sell the company for a low price and were paid separately by the buyer there are laws about that.

ThrustVectoring 9y ago

How is this a perfect free market reaction? It's explicitly a reaction not by market participants, but by the relatively minor players who make up part of the rules of the game. The "free market reaction" is that if these capital structures suck, active investors don't buy them or short them, and the stock price goes down. That is, if shareholder control was actually valuable, it'd command enough of a premium to discourage SNAP's behavior.

macspoofing 9y ago
>How is this a perfect free market reaction? Because it's a private organization making a free choice, a choice which you can ignore.
- noobermin 9y ago
  When is "free market" synonymous with private choices? This sounds like a bad conflation.
  - jacalata 9y ago
    It's not synonymous but a free market is built on the ability for private parties to make their own choices.
    - acjohnson55 9y ago
      And a whole bunch of other criteria. I the term the OP was looking for was just "market".
  - macspoofing 9y ago
    Since always? Your definition of 'free market' is perfect competition[1]? [1]https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition
pishpash 9y ago
Why don't you just buy SNAP directly? S&P 500 is just an index, like a phonebook. They can list or not list whatever they want, and ETF's can follow or not follow those indexes.

TAForObvReasons 9y ago

The indices should have given a grace period rather than a blanket grandfathering of existing multi-class-structured companies. It arguably discourages further participation in the public markets if a massive amount of control has to be ceded, and it implicitly gives the grandfathered companies a massive advantage (in particular Facebook, wherein one founder has majority voting control despite not having majority ownership)

kgwgk 9y ago
Why does it give an advantage (and a massive one!) to Facebook? I see how it gives a massive advantage to MZ. But MZ!=Facebook.
- TAForObvReasons 9y ago
  When the owners don't control the vote, it's difficult to pass up on short-term opportunities without facing pressure from activist investors and the like. And being able to stay the course is a massive advantage to those companies that can do so without facing corporate attacks. That's a concrete advantage for the long-term prospects of Facebook, assuming of course that the owners' interests are aligned with the long-term value of the company. And obviously having innate demand in the form of index funds is a great advantage that boosts the market cap (as you see time and time again when stock prices pop upon entrance and drop upon exit of indices)
  - kgwgk 9y ago
    When the owners don't control the vote, you have situations like Facebook or Google. It may not be necessarily bad, but the idea of those who have control being the owners is an indication of why it can be bad.

mcguire 9y ago

"To give an example of what companies like SNAP are foregoing by not allowing voting rights is access to, of the 7 largest owners of google stock, 2 are the founders, the other 5 are mutual funds/ETF fund firms." I agree with most of your post, but what exactly are they forgoing? How much of Google do the two founders control? Furthermore, most funds are mostly hands off, and any proposals by any one not in your list are starting out dead.

lmm 9y ago
They're forgoing investment from those sources, is the point. If those funds aren't buying the stock, its price will presumably be lower, which makes it harder for Snap to buy other companies, raise new capital, and so on.

Lazare 9y ago

> I think this is a perfect free market reaction to companies not having voting stock. It's probably as good a reaction as we're going to get, but what in the world is free market about it? A free market reaction would be something like: "Active investors decide that Snap's governance will lead to poor outcomes, and avoid it, driving the share price down. Future IPOs pick better governance structure in order to obtain higher share price." Nothing of the kind happened. This is about a single company making a decision, not about markets at all.

icebraining 9y ago
So how many companies does it take to be a free market decision? 5? 20? A third? A majority? What if those active investors had taken advice from a single company, like a ratings agency?

will_brown 9y ago

pishpash 9y ago
There is always demand for gambling.

ISL 9y ago

In the case of BRK.B, the shares still have voting rights, unlike SNAP and GOOG (C). I've always been impressed that people would buy GOOG instead of GOOGL at such a small discount. 1.8% is not a lot to pay for voting rights.

johannes1234321 9y ago
What could you do with the voting rights? 51% of the votes are held by the two founders. Some more votes are held by people close to them (i.e. Eric Schmidt) This gives very little theoretical and even less practical worth to the votes, whereas the actual worth is benefiting from profits.
- jondubois 9y ago
  I guess the premium accounts for the eventuality of the founders selling their stock. Their shares will be sold eventually, whether in their lifetimes or after.
  - johannes1234321 9y ago
    While introducing the C class of stocks they made clear that they don't plan to give up their majority any time soon (that's the whole reason the were introduced) thus that premium is far in the future.
Blackthorn 9y ago
You don't have any voting rights when you buy GOOGL either, it's a complete fiction. The founders control 51% of the votes. If anything, it's impressive that GOOGL trades at a premium at all.
- prewett 9y ago
  You absolutely get voting rights, you just don't get voting control. But there are three founders, so they have to vote together as a block to get that 51%. And over time, they may sell some of their voting stock.

khazhoux 9y ago

> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead. I guess I'm a fool, because I take zero interest in participating in any of the stocks I've bought, apart from just monitoring the latest price and watching them (hopefully) go up. Voting rights or not makes no difference to me. But I suspect most individual / non-institutional investors are like me. So when I see people get upset about voting rights, it's really just a small number of very self-interested and deep-pocketed parties (activist investors, etc) with their own opinions of how a company should be run, and I don't as-a-rule agree with their opinions.

prewett 9y ago
I also never vote (which means my broker votes for me). However, I very much value the ability to vote. Owning stock is about owning the company, and if you have no vote, you have no ownership. If management doesn't trust me with a vote, what makes me think they have my interests in mind? At that point, owning the stock is simply gambling on the price going up. Maybe I get some dividends, too--bonus--but since my share class can't vote, what would make the owners give any dividends to that class, rather than keeping it all themselves? If management wants to keep control, that's great, I'm all for that, but then they should issue bonds, not stock.
TorKlingberg 9y ago
Even if you don't vote, the voting rights in your stocks make them more valuable to someone else who would buy the stocks from you.

rudyl313 9y ago

"If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead." While I see you sentiment here, I don't think it's actually correct. Non-voting common stock will receive distributions if any cash is left over after a liquidation and debt, preferred and high-ranked common stock holders are paid (i.e. there is a real claim on assets). Also, with any common stock that doesn't pay dividends, the reason to hold is the promise of dividends (and/or buybacks) when the company does not have any more avenues for investing excess income. This is true for non-voting shares as well.

xadhominemx 9y ago

shalmanese 9y ago

We've entered into this topsy turvy world where passive investors are activists and active investors are passive. It's lead to ridiculousless like the current situation and also Aramco's contortions to bend the arm of the LSE for a new listing structure. It speaks to the incredible orthodoxy that's grown up around indexing over the last few years, much of it poorly thought out. After all, if you believe in the Efficient Market Hypothesis, then indexes pulling out of SNAP doesn't hurt SNAP, it only hurts index funds as activists will move to backfill demand. If you don't believe in EMH, then what are you doing buying index funds? Index has become such a hot word recently that it's started to lose it's meaning. Before, a fund operated something like this: 1. You pick a basket of stocks 2. You buy those stocks Now, because "passive" is so much hotter than "active", it becomes: 1. You pick a basket of stocks 2. You contract a 3rd party index provider to construct an "index" based on that basket 3. You buy that index Voila, you're now "passive" rather than "active" but all you've done is stock picking with extra steps. The markets have already responded with price signals and their signal is that voting really isn't that valuable. For all the high minded rhetoric of corporate governance, price is where the rubber hits the road and the results are pretty unambiguous. The whole point of indexing was that I didn't have to make decisions and now I have to make all sorts of decisions over which index provider I pick and what growth I'm missing out on because of arbitrary exclusions to the index. edit: As always, Matt Levine of Money Stuff says this stuff better than I ever could. Read him religiously if you want to cut through all the bullshit of finance.

SilasX 9y ago
Thank you! I tried to make the same point with different words here: https://news.ycombinator.com/item?id=14906737 https://news.ycombinator.com/item?id=14906737