8 ms·

Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsu

Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. It is like a treadmill that keeps increasing speed. If you slow down, you are thrown out. If consecutive quarterly results are not good, CEO is typically thrown out. This pressure forces management to make unnatural decisions that might help short-term, but will hurt long-term. What we are seeing with Google with all of these recent events/decisions is a result of this, IMO.

luminiferous 8y ago
Obviously, growing every quarter significantly is not sustainable. But growing profits every quarter is how stock price goes up, right? Assuming you don't pay dividends on your stock, if you don't grow profits every quarter then your stock price doesn't go up, and the shareholders (via the board of directors) will sack the CEO. The whole incentive structure for corporations seems to cause the short term thinking that you see in large companies. Can you keep the shareholders placated by paying dividends instead of growing stock value via growing profit?
- pc86 8y ago
  You still need to grow by more than the dividend or you will erode share price over time. Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that.
  - stale2002 8y ago
    > You still need to grow by more than the dividend or you will erode share price over time No you don't. Imagine a company that has a share price of 100$. And this company makes 10$ in profit, per share, and returns that 10$ in profits to shareholders every year in perpetuity. Thats a 10% rate of return that investors would be happy to accept in perpetuity. People accept this deal all the time. Usually they are called "bonds" or "loans", and they act as merely an a perpetuity cash payout.
    - 794CD01 8y ago
      People accept that deal when they have a very strong guarantee that their $100 will still be worth $100 at the end of the term. Combining the low yields of bonds (let's be honest, your numbers are chosen for their roundness, not their realism) with the low safety of stocks is the worst of both worlds.
      - joshuamorton 8y ago
        He's talking about investing in value stocks. There's quite literally a word for low growth but reliable stocks that pay out decent dividends. "Value stocks", as opposed to "Growth stocks" where investors expect to see the returns directly in the stock price.
    - StanislavPetrov 8y ago
      The critical flaw is that one of the stated goals of the FED is to manufacture inflation. You need to "grow" at at least the rate of FED-induced inflation, otherwise you are shrinking. Its how our debt-based, rent-seeking economy "functions".
    - titzer 8y ago
      > Thats a 10% rate of return It isn't, because it's not compound interest (exponential growth), which is what everyone is after--and needs, to beat inflation. It's a fixed revenue stream. To make it compound, one would have to reinvest the return in this stock or something else, and reinvesting in this stock would increase its demand, which pushes its price up, and then we're off to the races again. The whole system is mathematically unstable. It's only survived this long due to slow(ish) growth, but it keeps experiencing repeated price shocks, crashes, currency rebases, debt defaults, and finally issuing new currencies (which, btw, is why everyone is going nuts over crypto currencies). It can last quite some time--perhaps a couple generations--when the exponents are very low (read: < 3%), but when the exponents are high (i.e. companies shooting for > 10% growth), this thing is going off the rails. Welcome to the show!
      - tracker1 8y ago
  - blauditore 8y ago
    > Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that. Why not? If it's somewhat reliable (in the long run, averaged out), that's a ROI of 2.5%, which is not too bad I think.
- tracker1 8y ago
  I think it is and should come down to either reinvestment of returns and growth, or dividends... both grow the economy, provide value and/or increase share value. What doesn't do that is parking capital in other countries as tax havens. I'm okay with the former two. I do think shareholders are more than happy to see 10-20% in dividend returns annually. They're able to buy more stocks or diversify accordingly. I'm also okay with growth and reinvestment internally in a company (that tends to grow stock value). And it isn't an either/or issue. What I don't think is reasonable is to see a given company try to get consistent growth in saturated markets they heavily control. It doesn't work, and trying to do so leads to horrible decision making in the longer term.
qaq 8y ago
in google's case founders still control the majority of votes though no?
ucaetano 8y ago
> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Hey, feel free to invest your retirement savings in a company that doesn't grow profits year after year, I'm sure you'll do great!
- chris_mc 8y ago
  >invest your retirement savings We would need to rework the whole system if we threw out the "constant growth" method of running a company. If we take care of the people so they don't have to worry about saving for retirement, it's possible to redesign the economy in this way and our goals as a society. You obviously can't change one major axiom of the US economy without revisiting the remaining axioms!
  - NeoBasilisk 8y ago
    No idea why this is getting downvoted.
    - chris_mc 8y ago
      Hacker News is full of capitalists and libertarians who hate any mention of alternative economic systems.
- pixelbath 8y ago
  Not all companies exist solely as an investment vehicle.
  - ucaetano 8y ago
    Sure, but would you invest your retirement savings in one that doesn't?
  - brainwad 8y ago
    They are literally government sanctioned investment vehicles. If they don't return profits to their owners, they are non-profits/charities, not corporations.
notyourday 8y ago
> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Not if such executives have controlling interest, which Google's execs do.
stale2002 8y ago
> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is not true at all. There are lots of companies out there that make a profit, and return those profits to shareholders via dividends. If google wants to just continue making profits, they can just do that, and send that money back to the shareholders/owners, just like most every other company out there.
mrep 8y ago
> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Continuous growth is sustainable at or below world economic growth. It is obviously not sustainable above as eventually you would become the entire economy and thus you would equal world economic growth. However, economics is not zero sum as our economies have pretty continuously grown for centuries and there is no limit on economic growth.
kenmicklas 8y ago
See: https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... for a detailed analysis of this effect

luminiferous 8y ago

Obviously, growing every quarter significantly is not sustainable. But growing profits every quarter is how stock price goes up, right? Assuming you don't pay dividends on your stock, if you don't grow profits every quarter then your stock price doesn't go up, and the shareholders (via the board of directors) will sack the CEO. The whole incentive structure for corporations seems to cause the short term thinking that you see in large companies. Can you keep the shareholders placated by paying dividends instead of growing stock value via growing profit?

pc86 8y ago
You still need to grow by more than the dividend or you will erode share price over time. Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that.
- stale2002 8y ago
  > You still need to grow by more than the dividend or you will erode share price over time No you don't. Imagine a company that has a share price of 100$. And this company makes 10$ in profit, per share, and returns that 10$ in profits to shareholders every year in perpetuity. Thats a 10% rate of return that investors would be happy to accept in perpetuity. People accept this deal all the time. Usually they are called "bonds" or "loans", and they act as merely an a perpetuity cash payout.
  - 794CD01 8y ago
    People accept that deal when they have a very strong guarantee that their $100 will still be worth $100 at the end of the term. Combining the low yields of bonds (let's be honest, your numbers are chosen for their roundness, not their realism) with the low safety of stocks is the worst of both worlds.
    - joshuamorton 8y ago
      He's talking about investing in value stocks. There's quite literally a word for low growth but reliable stocks that pay out decent dividends. "Value stocks", as opposed to "Growth stocks" where investors expect to see the returns directly in the stock price.
  - StanislavPetrov 8y ago
    The critical flaw is that one of the stated goals of the FED is to manufacture inflation. You need to "grow" at at least the rate of FED-induced inflation, otherwise you are shrinking. Its how our debt-based, rent-seeking economy "functions".
  - titzer 8y ago
    > Thats a 10% rate of return It isn't, because it's not compound interest (exponential growth), which is what everyone is after--and needs, to beat inflation. It's a fixed revenue stream. To make it compound, one would have to reinvest the return in this stock or something else, and reinvesting in this stock would increase its demand, which pushes its price up, and then we're off to the races again. The whole system is mathematically unstable. It's only survived this long due to slow(ish) growth, but it keeps experiencing repeated price shocks, crashes, currency rebases, debt defaults, and finally issuing new currencies (which, btw, is why everyone is going nuts over crypto currencies). It can last quite some time--perhaps a couple generations--when the exponents are very low (read: < 3%), but when the exponents are high (i.e. companies shooting for > 10% growth), this thing is going off the rails. Welcome to the show!
    - tracker1 8y ago
- blauditore 8y ago
  > Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that. Why not? If it's somewhat reliable (in the long run, averaged out), that's a ROI of 2.5%, which is not too bad I think.
tracker1 8y ago
I think it is and should come down to either reinvestment of returns and growth, or dividends... both grow the economy, provide value and/or increase share value. What doesn't do that is parking capital in other countries as tax havens. I'm okay with the former two. I do think shareholders are more than happy to see 10-20% in dividend returns annually. They're able to buy more stocks or diversify accordingly. I'm also okay with growth and reinvestment internally in a company (that tends to grow stock value). And it isn't an either/or issue. What I don't think is reasonable is to see a given company try to get consistent growth in saturated markets they heavily control. It doesn't work, and trying to do so leads to horrible decision making in the longer term.

qaq 8y ago

in google's case founders still control the majority of votes though no?

ucaetano 8y ago

> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Hey, feel free to invest your retirement savings in a company that doesn't grow profits year after year, I'm sure you'll do great!

chris_mc 8y ago
>invest your retirement savings We would need to rework the whole system if we threw out the "constant growth" method of running a company. If we take care of the people so they don't have to worry about saving for retirement, it's possible to redesign the economy in this way and our goals as a society. You obviously can't change one major axiom of the US economy without revisiting the remaining axioms!
- NeoBasilisk 8y ago
  No idea why this is getting downvoted.
  - chris_mc 8y ago
    Hacker News is full of capitalists and libertarians who hate any mention of alternative economic systems.
pixelbath 8y ago
Not all companies exist solely as an investment vehicle.
- ucaetano 8y ago
  Sure, but would you invest your retirement savings in one that doesn't?
- brainwad 8y ago
  They are literally government sanctioned investment vehicles. If they don't return profits to their owners, they are non-profits/charities, not corporations.

notyourday 8y ago

> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Not if such executives have controlling interest, which Google's execs do.

stale2002 8y ago

> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is not true at all. There are lots of companies out there that make a profit, and return those profits to shareholders via dividends. If google wants to just continue making profits, they can just do that, and send that money back to the shareholders/owners, just like most every other company out there.

mrep 8y ago

> Fundamental issue is the expectation that all public companies must keep growing and show profits quarter after quarter, year after year. This is obviously unsustainable. Continuous growth is sustainable at or below world economic growth. It is obviously not sustainable above as eventually you would become the entire economy and thus you would equal world economic growth. However, economics is not zero sum as our economies have pretty continuously grown for centuries and there is no limit on economic growth.

kenmicklas 8y ago

See: https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... for a detailed analysis of this effect