14 ms·
The Long-Term Stock Exchange Comes to Life
- pavel_lishin 9y agoIt would be nice if they explained what it actually was. This paragraph has zero informational calories: > 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.
- qubex 9y agoThanks for posting that. 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?
- pavel_lishin 9y ago> Have you found any reference 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.
- eries 9y agoSee above - our rules do handle derivatives and options elegantly (imho), but I can’t say too much about how it works yet.
- wyldfire 9y agoThis article is short on details. 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-exchange/ https://qz.com/704657/eric-ries-ltse-long-term-stock-exchang...
- trothamel 9y agohttps://www.wsj.com/articles/silicon-valley-vs-wall-street-can-the-new-long-term-stock-exchange-disrupt-capitalism-1508151600 https://www.wsj.com/articles/silicon-valley-vs-wall-street-c... 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.
- deleted 9y ago[deleted]
- deleted 9y ago[deleted]
- qubex 9y agoNaked shorters by definition own no stock currently so have no right to vote, but it may or may not affect calculations regarding the average seniority of stock against which rights are measured (it cannot be absolute, since you could conceivably have a situation where everybody shuts purchased the stock, and thus ownership of all would be zero, and thus nobody would have a right to vote). 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?
- hendzen 9y agoYeah I expect these rules will be rendered effectively moot by equity swap trading.
- 9y ago
- ringaroundthetx 9y agoUnless this was launched by State Street or Vanguard how would anyone think this was a good idea or effective idea More like Zero Liquidity Stock Exchange am I right?
- yalogin 9y agoSo if I understands correctly it’s intended to be a place where one can only go long on shares? Why would some company list here? Why would investors use it? That post was 2 paragraphs long and explains nothing.
- thaumasiotes 9y ago> it’s intended to be a place where one can only go long on shares? Why would some company list here? The obvious theory would be "they think they're a scam, and they don't want other people to realize that".
- thrill 9y agoI find some irony in that the frequently stated mission of the LTSE is, well, long term thinking, and yet the most recent Dec 7 medium post is about how excited they are to be accelerating their launch by pairing with an existent platform.
- eries 9y agoIt’s a paradox of startup life that the best way to sustain a long-Term vision is via rapid experimentation. Amazon is a great example of this, if you want to see it at scale, but there are many others. So I don’t see any irony here.
- linkmotif 9y agoHow are these two things at all at odds with each other? How is a post that talks about a seven year project not long term enough for you?
- jgh 9y agoTheir about page is kinda weird. Unless there are a bunch of people not listed, it seems like there are only 3 people in the company who aren't a manager of some kind. For example there are 2 software engineers, a software engineering manager, a VP of technical operations, and a vp of engineering.
- eries 9y agoIndeed. We don’t list most of or employees to protect their privacy. This is a pretty controversial project.
- juanmirocks 9y agoVery much looking forward to this idea coming into fruition. The post doesn’t give much information though. I‘d so wished, that a service like Robinhood and this too were available in Europe.
- eries 9y agoThanks
- whack 9y ago"Tenured shareholder voting power, meaning that a shareholder’s votes would be proportionately weighted by the length of time the shares have been held" 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.
- nickparker 9y agoNowhere near a lawyer here, but: 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.
- qubex 9y agoI don’t see how that could work generally. Sure, it might be possible to enforce by-laws when making a sale/purchase (but extra obligations would inevitably drive down the sale price), but what of situations in which collateral shares are foreclosed upon, they are inherited, or other non-voluntary transfers of ownership? What if one day they ended up even temporarily in the hands of a government (for example, the Italian government’s property and assets cannot by law by encumbered in such a manner). What then? The chain is broken.
- kbenson 9y ago> for example, the Italian government’s property and assets cannot by law by encumbered in such a manner 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.
- dude01 9y agoWell, I like the general idea, but am not sure about their implementation. Obviously have to wait for details, like SPV vs. real-person ownership. 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.
- choxi 9y agoCan someone tell me if this idea is crazy? 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.
- skilgarriff 9y agoThis is a real scenario where I think cryptos will change the ecosystem in the next few years. There is a LOT to figure out in this space (ICO Madness), but I believe once the dust settles, this is a real problem that could be solved.
- WhoIsSatoshi 9y agoagreed - what we're seeing is essentially a peer distributed stock market or "blockchain-like" linking of salaries to perf and voting to stock (proof of stake). I view it as a good first step, but I am expecting an ethereum-based platform to one-up this idea in a few years.
- filleokus 9y ago
- eries 9y agoHey everyone, Eric Ries here. I’m the founder and CEO of the LTSE (and also the Lean Startup guy). Happy to see the discussion here and will try and answer a few questions. Unfortunately, a lot of the details of how the LTSE works are subject to regulatory approval, so I can’t share too much while we are working out the details with them. Still, I’ll do my best to answer. Thanks for the comments and happy new year
- startupdiscuss 9y agoMy main question is: what is the LTSE? 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.
- eries 9y agoLTSE = The Long-Term Stock Exchange 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.
- jacques_chester 9y ago> 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.
- sixQuarks 9y agoEric, this is a very interesting project, I'd like to see this succeed. Be aware that Hacker News has a very negative bent when it comes to new ventures like this. You're going to get a lot of criticism about how this will never work, etc, etc. Go read the Show HN of DropBox to see what I mean. Good luck!
- known 9y agoTo counter HFT?
- ChuckMcM 9y agoI like it conceptually but I'm not sure how different it is from schemes where the founders have 10x voting rights to big chunks of stock (like Facebook and Google). These companies, from a voting perspective, can't get bullied by activist share holders but it doesn't help. 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.
- eries 9y agoThat’s a good observation. Today’s Dual class systems only protect the founders from a specific kind of short-term pressure. But there are still thousands of employees overreacting to volatility and jumping at shadows. Our rules are designed to address the full “user experience” of being an employee in a public company, with the goal of aligning the whole enterprise towards more Long-Term goals.
- chii 9y agoemployees should not be compensated with stock. Stock based compensation creates incentives for such employees to increase just the stock price without increasing the underlying value generation mechanism. Paying in stock also means you're forcing the employee to 'invest'. While it's true that paying with stock is a form of hand-cuffing to make sure the employee's incentive aligns with the company, i feel it's just too easy to 'game' this stock metric.
- jnordwick 9y agoHow does someone "increase just the stock price without increasing the underlying value generation mechanism"? 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.
- hendzen 9y agoAnother question - how does the exchange make money if the rules seemingly discourage trading?
- eries 9y agoEven incumbent Exchanges make money a lot of other ways today
- marcrosoft 9y agoThis is terrible. > 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.
- eries 9y agoOur goal is not to reduce trading
- qubex 9y agoMost people seem to be concerned about ”gaming the rules” but are positing scenarios that can be modelled as acyclical directed graphs (ADG). I’m wondering if who framed the rules even thought of general directed graphs with potential cycles (company A owns shares of company B that owns shares of company C that owns shares of companies B and A). It would seem that most manners of computing seniority would fail in such situations because of the lack of unique, non-ambiguous ancestry (but I might be wrong).
- kharms 9y agoWhy not just add friction to selling stocks soon after purchase, perhaps a fee % that shrinks for X years. I feel that be simpler to implement and would lead to a healthier market long-term. 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.
- WoodenChair 9y agoIsn’t that the same as how the capital gains tax currently works? The rate of tax you pay on a winning stock goes down over time until you hit the long term rate at a year.
- deleted 9y ago[deleted]
- brucephillips 9y agoNo, there's just a single discontinuous tax discount at 1 year.
- munchor 9y agoI am pretty sure this is a per-country setting too. I know the US has the one you referred to but other countries might have different taxation laws.
- crazygringo 9y ago> 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. 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-b37bc06f590c https://www.ft.com/content/23fd921e-3b75-11e5-bbd1-b37bc06f5...
- ChuckMcM 9y agoThat's an excellent point. When CEOs are measured by, and compensated with, stock (and stock price), their own judgement runs counter to long range thinking. After all if they can double their net worth with a couple of short term tricks and move on, then they will be much more inclined to drive the company that way.
- rsync 9y ago"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)?" 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.
- monkeydust 9y agoWill the exchange support debt instruments?
- eries 9y agoUnlikely
- JepZ 9y agoI hope they have a long breath. 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.
- WalterBright 9y ago"short-term pressures were driving their decision-making, often at the sacrifice of the long-term potential of the business." 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?
- robbiep 9y agoThere is absolutely no doubt that short term thinking is critical in the modern public company, and certainly examples of detrimental effects of it: at a simplistic level, when executive remuneration and bonuses depend on share prices with quarterly reviews, executive teams can (not do, this is not an absolutist position) focus on short term measures to boost their numbers - maybe they invest less in R&D, maybe they cut training budgets, maybe they fail to invest in long term growth options. 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
- WalterBright 9y ago> focus on short term measures to boost their numbers 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?
- untangle 9y agoI applaud efforts to improve corporate governance and rationalize public market function. But I believe that this initiative to "...realign investors and companies around long-term value creation (LTVC)..." is a suboptimal approach. 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.
- roguecoder 9y agoThere's also two other groups here: employees are very likely to value long-term value creation, since it would provide job security, an incentive to invest in employees, and a better chance of bonuses and raises. Second, communities where these companies are located: handing out tax incentives and cheap loans make more sense if the company isn't going to leave the community high and dry in a couple years. The advantages of long-term value creation aren't just fear-oriented: it's possible such a company will be able to hire people and rent office space more cheaply because it has that label. 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.
- hago1234 9y agoThe "blind" focus on quarterly reports is real. 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?
- vadimberman 9y ago> 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.
- tbak 9y agoYou might be interested in the wonderful book series "The Three-Body Problem" by Liu Cixin. It explores (among countless other things) how huge expensive projects that last multiple generations could be implemented.
- eries 9y agoThis book is wonderful even apart from its interest in Long-Term thinking
- twobyfour 9y agoA great place to begin to explore would be medieval European cathedrals, many of which took 500 years or longer - dozens of generations - to complete.
- vadimberman 9y agoAn incredibly important initiative, although I'm wondering how it will catch up. 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.
- eries 9y agoI guess we’ll see. Thanks for the kind words
- sytelus 9y agoTLDR; 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-chamath-palihapitiya.html?ref=dealbook https://www.nytimes.com/2017/09/18/business/dealbook/ipo-cha...
- grondilu 9y agoThis was discussed on HN already and I'm sad to see this showing up again. If you artificially create obstacles to market liquidity, you create incentives for bypassing those obstacles[1]. If a stock can't be sold on an official market, then it will be sold on a officious one, with various possible mechanism, the most obvious one being a front company holding the stock officially while secretly keeping a book of its "real" holders. There are, maybe, some inconveniences and possibly economic inefficiencies in the trend that can be observed for investors preferring investing in the short term rather than the long term, but it is very narrow-minded to react to this by suggesting to limit market liquidity. IMHO this attitude shows a deep mistrust in the free market and a step away from capitalism towards socialism (since in socialism, stocks are not liquid at all). 1. "Money, capital, has a life of its own. It's a force of nature. Like gravity. Like the oceans : it flows where it wants to flow." https://youtu.be/BAhhqqX1XEU?t=154 https://youtu.be/BAhhqqX1XEU?t=154
- deepGem 9y agoI was initially very skeptical of this idea and I still am. Like many threads have pointed below, long term strategy is super easy to game. Oh 'we haven't made any money this quarter because we are debating and finalizing our long term goals'. This could become the anathema of rapid iteration. 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.
- roguecoder 9y agoHow is that gaming long-term strategy? That sounds like not having a long-term strategy, which would be terrible under any philosophy. If anything it's easier to coast by now, when no one bothers asking if you've thought past next quarter. 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.
- grwthckrmstr 9y agoCan't comment on the "long-term" success of LTSE, but I LOVE the philosophy. 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!)
- eries 9y agoThanks
- joubert 9y agoIs the intent to compete for listings against NYSE, LSE, SEHK, NASDAQ, etc.?
- eries 9y agoYes, although companies can dual list too
- husamia 9y agowhen I saw the title I thought this would be a decentralized exchange since it seems to be a hot topic nowdays. I am still trying to find more information.