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"They described the immense pressure on companies to pursue short-term results over creating value for future decades and generations." Where does this pressur

"They described the immense pressure on companies to pursue short-term results over creating value for future decades and generations." Where does this pressure come from? The board? Can't you appoint a board that is long-term friendly? Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA? Shareholders? Shareholders agree to all sorts of craziness if they like your company (see voting structure of Palantir, Facebook, etc.) Maybe others can elaborate on what problem is being solved here.

nicoburns 6y ago
I have no idea if this solves the problem, but I think the problem is shareholders. Specifically, a proportion of shareholders favour short-term profits, and those shareholders outcompete the long-term minded shareholders leading them to have greater influence over time. These short-term shareholders are extracting value at the expense of wider society, and it's a massive problem.
- pbhjpbhj 6y ago
  The proportion being ~100%? Then they can move on and suck some other company dry.
- ethbr0 6y ago
  On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses. If PayPal et al. had retained profits in the business for a long term goal, a substantial number of innovate companies couldn't have formed. The more nuanced problem is likely that short-term and long-term shareholders' goals are mutually exclusive. That is, there is a rarely a strategy that's optimal for both. Coupled with the fact that some businesses (apps!) favor short-term strategies, while others (biotech!) favor long-term strategies.
  - nicoburns 6y ago
    > On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses. I'm not sure that's a benefit if they then destroy those businesses too.
    - ethbr0 6y ago
      Not all businesses are productive. Look at a few decades of Japanese economic history. If capital is tied up in a failing business that's pursuing a "long term strategy," then it's not freed for new businesses. SpaceX and Tesla (to name two HN faves) probably wouldn't exist had PayPal retained more of its capital.
- JackFr 6y ago
  If you need money over the long term and you don't want to relinquish control, we have a thing called the bond market. Borrow for 5, 10, 30, heck, even 99 years and your interest is tax deductible! (Borrowing longer than 99 years the IRS may want to talk to you. Your bonds start to look like preferred stock.) Wait -- the bond market won't lend to you cause they don't trust your ability to generate that return for the next 20 years? Go to the junk bond market -- they'll lend to you. In fact here's an idea go to the junk bonk market, and borrow money to take your company private -- out of the hands of those grubby short term shareholders.
  - nicoburns 6y ago
    The public markets aren't just designed to maximise shareholders value. Maximising shareholder value is supposed to be a means to maximising societal value. If the shareholder model isn't doing that then it isn't fit for purpose.
    - JackFr 6y ago
      The perpetual, limited liability enterprise as legal person, owned via tradeable claims on equity, managed by professionals distinct from the owners, what we call modern financial capitalism, has been a boon to the world. Obviously it’s not the only way one could organize productive endeavors. But it’s pretty well understood that it produces greater long term economic growth than any other competing system. It has known shortcomings, but maximizing shareholder value is a really good solution for the agency problem introduced by the creation of a non-owner managerial class.
      - nicoburns 6y ago
        > it’s pretty well understood that it produces greater long term economic growth than any other competing system... It has known shortcomings. I mostly agree that it's better than other system that we've tried in the past (although I'd argue that the more highly regulated capitalism with higher taxation levels of the 60s-80s was slightly better than our current (post-90s) deregulated system). But I'm a bit more ambitious than you. I don't think we should rest on our laurels and accept the known shortcomings. I think we can do better, and I think we should actively look at doing so. I feel like maximising shareholder value is a mediocre solution to the problem introduced by the creation of a non-owner managerial class. I'm not entirely sure what the best solution to the problem is, but I'm convinced that we need a better one than the one we have.
- DennisP 6y ago
  One solution might be for shareholder votes to be weighted by the length of time they commit to hold the shares.
AznHisoka 6y ago
One of the problems with the regular stock market is that valuations are not tied to the future cashflow of the company. This isn’t how the LTSE works but it would be awesome if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years. Combined this with a minimum holding period, and I dare people to bid $300+ for Tesla stock :)
- pavlov 6y ago
  I don’t get it. There are already plenty of public companies that pay extremely predictable dividends. This is a popular investment type for retirement portfolios, among others. Why should they be on a separate exchange?
  - deleted 6y ago
    [deleted]
  - AznHisoka 6y ago
    The dividend is not based on their cashflow. So if Apple is paying 1% dividend on a $100 stock price, but their cashflows increase every year, they're still paying you $1 every year. What I'm suggesting is an exchange where the dividend is a fixed % of their cashflows. Let's say it's 1%. If their cashflow is 1 billion, then 1% of it goes to their shareholders. If it doubles the next year, then 1% of that 2 billion goes to the shareholders. Combine this with a minimum holding period (ie 1 year), and you've basically now made the stock price equate to its fundamentals. ie how much cashflow it's generating in the future. If investors think it'll go up, they'll bid the price up. not because they want to sell it to a greater fool.
    - howeyc 6y ago
      I'm not certain, but I think you just described a REIT.
    - derivagral 6y ago
      As I understand it, the dividend is set typically in a dollar amount and the % is a metric derived from that. I agree that the figure is (usually) a bit nonsense. However, I don't think your phrasing is as clear as it could be. If Apple announces a 10% dividend with a 1T market cap that's $100b in distribution. If the market cap doubles to 2T later that year, that dividend payment isn't suddenly updated to $200b; it just shows up as a 5% dividend in your typical metrics.
SamBam 6y ago
Yes, I feel like more of an explanation is required. Investors in existing exchanges already understand the different metrics companies might be categorized under -- value vs growth, for example -- and this seems like "extra-long-term value." But does that require a new exchange, or just a new valuation for companies? How about an index fund that invests only in such companies? I would probably invest in a "Vanguard Long-Term Growth Fund," and I would assume that companies that got themselves on such a fund would want to stay there. Perhaps the LTSE includes new rules for things such as how often stocks can be traded, but this isn't evident from that blog post, or the first one referenced in the post.
- pmart123 6y ago
  In Europe, companies like LVMH and L'Oreal has bonus dividends or extra voting rights for long-term institutional shareholders already. Essentially, if you hold onto shares for over 1 year, 2 years, etc., you can offer shareholders additional incentives.
  - Galanwe 6y ago
    Do you have a source for this? I don't see how that could be possible, unless they created a new share class for these long term investors. The price of the share has to be adjusted at the dividend ex date to reflect the drop of value induced by the dividend payout. If not every holder of the share class benefited from it, then this is obviously unfair. Now if you are talking about different share classes, then they would have to either be issued to current shareholders (e.g as rights issuance, in which case every shareholder could have them, long term or not), or publicly traded (same thing basically, everyone could have them, long term or not), or privately traded. In that last case, I would not really say this is "for long term investors", it's more a matter of private equity / politics / governance. Don't expect to enter that kind of deal unless you are a _big_ institutional investor.
    - cdmoyer 6y ago
      Specifics about L'Oreal. https://www.loreal-finance.com/eng/registered-shares-loyalty-bonus https://www.loreal-finance.com/eng/registered-shares-loyalty... General discussion of the concept in France. http://jpkoning.blogspot.com/2016/09/the-french-shareholder-revolution.html http://jpkoning.blogspot.com/2016/09/the-french-shareholder-... > Despite ensuing controversy in the French legislature over the fairness of elevating one class of shareholder above the rest, the ability to provide prime de fidélité was enshrined in French law in 1994, with several limits.
m12k 6y ago
I think this is less about attracting investors who think long-term than it is about telling investors who think short-term to go somewhere else.
tomhoward 6y ago
The pressure comes from investors. (The board is elected by shareholders, so in theory they represent the wishes of investors). It's extremely difficult/rare to find investors who will just sit back and trust the CEO run the company as they see fit, particularly in a world where "unicorns" are going from zero to $billions in a few years. It happens occasionally, but only in the case of extreme outlier companies where the company is already a rocketship and thus the CEO/has already proven themselves - e.g., Apple/Jobs-post-mid-2000s, Facebook/Zuckerberg. Whilst plenty of companies could reach huge scale over a longer period of time, it can be difficult for investors/outsiders (and indeed the management themselves) to know whether their company really is a slow-building long-term winner vs a zombie. Perhaps what the LTSE is doing is attracting investors who are willing to be patient over a slow/long-term build, but to also work with the companies to ensure they really are on a path to long-term success and not in zombie mode.
- qeternity 6y ago
  I don't know why people continuously repeat this narrative. Two of the largest companies in the world, and in the history of humankind, are constantly marched higher by this "shortsighted" investor base: AMZN and TSLA. People say companies pursue short-term gains but in reality they just mean they pursue things they disagree with. And herein lies the dirty secret: professional investors aren't short-sighted, they just don't value the things you do because (shocker) the average Joe doesn't really understand how to create shareholder value.
  - Terr_ 6y ago
    > Two of the largest companies in the world Survivorship bias?
    - qeternity 6y ago
      No, because the whole premise here is that investor behavior prevents this kind of bias. You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.
einpoklum 6y ago
> Shareholders agree to all sorts of craziness if they like your company In my very limited experience, it is the _company_ which must accept all sorts of craziness from the shareholders rather than the other way around. Which is also how it stands officially... > Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA? Not clear at all that they would, if individual officers expect to have to justify short-term-losses.
x87678r 6y ago
There is no pressure. Good examples are Amazon and Tesla that make very little money and are valuable now because of their long term outlook. If you really do believe it is investors driving short term outlooks, a different exchange wont make a difference to how many investors buy the stock.
dcolkitt 6y ago
I'll give a shareholder's perspective. Management, when left unchecked, frequently engages in in wasteful empire building and prestige projects. The most apparent manifestation of this is in mergers and acquisitions. Decades of evidence shows that the median merger destroys shareholder value for the acquiring company. Imposing strong controls on corporate management is one of the most important thing that shareholders can do. This might take the form of independent boards, which aren't handpicked by the CEO. Or the removal of poison pills (which raises the threat of a hostile takeover for underperforming companies). But most important of all is the existence of transparent, consistent, regularly evaluated metrics. That means quarterly earnings targets. Like any job, CEOs need consistent feedback to keep their incentive aligned with those who employ them (shareholders). Management has shown time and time again, that when monitoring is weakened, they go off the reservation and destroy shareholder value. The good thing about earnings is that it's they're easy-to-measure, hard-to-fake tangible proof of continuing performance. In contrast stories about "long-term value" or intangible promises of future rewards are usually BS used to justify extravagant empire building while the CEO uses the company's balance sheet as his personal piggy bank. Lest anyone think that evil Wall Street shareholders are hobbling visionary CEOs, observe the rare cases when management does prove its credibility. Prime example is Amazon, which time and time again has scarified short-term earnings for long-term development. And nobody could possibly claim that it's punished by Wall Street for this. The difference is that unlike 99% of CEOs, Bezos has conclusively proven his ability and alignment with Amazon shareholders.
- gogopuppygogo 6y ago
  Bezos was an investment banker. Before he had the track record of long term development (only born from long term efforts) he knew how to speak Wall Street and had a track record on Wall Street. Most CEO’s will never be capitalized like him for long term empire building so it’s hard to say there couldn’t be more Amazon sized successes out there if Capital was more accessible for longer term visions.
  - darkerside 6y ago
    This seems sensible. If you want the goodwill from your investors to make a long term bet like Amazon did, you need to explain it to them in terms they can understand. It's a language anyone can learn with sufficient training and experience.
rectang 6y ago
> Maybe others can elaborate on what problem is being solved here. I found these two URLs helpful in understanding how LTSE sees its role: https://www.ltse.com/faq https://www.ltse.com/faq > Q. Would companies that list on the Long-Term Stock Exchange report quarterly earnings? > A. Yes. By law, U.S. public companies are required to report earnings at least quarterly. The difference is that the listing standards of the Long-Term Stock Exchange are designed to change the narrative for success, so that the quarterly results are viewed in context as part of a long-term narrative. https://longtermstockexchange.com/listings/principles/ https://longtermstockexchange.com/listings/principles/ > Long-term focused companies should consider a broader group of stakeholders and the critical role they play in one another’s success. The focus seems to be less on constraints on traders and trading, and more on policies that companies listed on the exchange must fulfill. So the LTSE doesn't have to be the exclusive venue for trading and a company can be dual-listed on LTSE and another exchange — the mere fact that the company is listed on the LTSE gives you a crucial piece of information.

nicoburns 6y ago

I have no idea if this solves the problem, but I think the problem is shareholders. Specifically, a proportion of shareholders favour short-term profits, and those shareholders outcompete the long-term minded shareholders leading them to have greater influence over time. These short-term shareholders are extracting value at the expense of wider society, and it's a massive problem.

pbhjpbhj 6y ago
The proportion being ~100%? Then they can move on and suck some other company dry.
ethbr0 6y ago
On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses. If PayPal et al. had retained profits in the business for a long term goal, a substantial number of innovate companies couldn't have formed. The more nuanced problem is likely that short-term and long-term shareholders' goals are mutually exclusive. That is, there is a rarely a strategy that's optimal for both. Coupled with the fact that some businesses (apps!) favor short-term strategies, while others (biotech!) favor long-term strategies.
- nicoburns 6y ago
  > On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses. I'm not sure that's a benefit if they then destroy those businesses too.
  - ethbr0 6y ago
    Not all businesses are productive. Look at a few decades of Japanese economic history. If capital is tied up in a failing business that's pursuing a "long term strategy," then it's not freed for new businesses. SpaceX and Tesla (to name two HN faves) probably wouldn't exist had PayPal retained more of its capital.
JackFr 6y ago
If you need money over the long term and you don't want to relinquish control, we have a thing called the bond market. Borrow for 5, 10, 30, heck, even 99 years and your interest is tax deductible! (Borrowing longer than 99 years the IRS may want to talk to you. Your bonds start to look like preferred stock.) Wait -- the bond market won't lend to you cause they don't trust your ability to generate that return for the next 20 years? Go to the junk bond market -- they'll lend to you. In fact here's an idea go to the junk bonk market, and borrow money to take your company private -- out of the hands of those grubby short term shareholders.
- nicoburns 6y ago
  The public markets aren't just designed to maximise shareholders value. Maximising shareholder value is supposed to be a means to maximising societal value. If the shareholder model isn't doing that then it isn't fit for purpose.
  - JackFr 6y ago
    The perpetual, limited liability enterprise as legal person, owned via tradeable claims on equity, managed by professionals distinct from the owners, what we call modern financial capitalism, has been a boon to the world. Obviously it’s not the only way one could organize productive endeavors. But it’s pretty well understood that it produces greater long term economic growth than any other competing system. It has known shortcomings, but maximizing shareholder value is a really good solution for the agency problem introduced by the creation of a non-owner managerial class.
    - nicoburns 6y ago
      > it’s pretty well understood that it produces greater long term economic growth than any other competing system... It has known shortcomings. I mostly agree that it's better than other system that we've tried in the past (although I'd argue that the more highly regulated capitalism with higher taxation levels of the 60s-80s was slightly better than our current (post-90s) deregulated system). But I'm a bit more ambitious than you. I don't think we should rest on our laurels and accept the known shortcomings. I think we can do better, and I think we should actively look at doing so. I feel like maximising shareholder value is a mediocre solution to the problem introduced by the creation of a non-owner managerial class. I'm not entirely sure what the best solution to the problem is, but I'm convinced that we need a better one than the one we have.
DennisP 6y ago
One solution might be for shareholder votes to be weighted by the length of time they commit to hold the shares.

AznHisoka 6y ago

One of the problems with the regular stock market is that valuations are not tied to the future cashflow of the company. This isn’t how the LTSE works but it would be awesome if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years. Combined this with a minimum holding period, and I dare people to bid $300+ for Tesla stock :)

pavlov 6y ago
I don’t get it. There are already plenty of public companies that pay extremely predictable dividends. This is a popular investment type for retirement portfolios, among others. Why should they be on a separate exchange?
- deleted 6y ago
  [deleted]
- AznHisoka 6y ago
  The dividend is not based on their cashflow. So if Apple is paying 1% dividend on a $100 stock price, but their cashflows increase every year, they're still paying you $1 every year. What I'm suggesting is an exchange where the dividend is a fixed % of their cashflows. Let's say it's 1%. If their cashflow is 1 billion, then 1% of it goes to their shareholders. If it doubles the next year, then 1% of that 2 billion goes to the shareholders. Combine this with a minimum holding period (ie 1 year), and you've basically now made the stock price equate to its fundamentals. ie how much cashflow it's generating in the future. If investors think it'll go up, they'll bid the price up. not because they want to sell it to a greater fool.
  - howeyc 6y ago
    I'm not certain, but I think you just described a REIT.
  - derivagral 6y ago
    As I understand it, the dividend is set typically in a dollar amount and the % is a metric derived from that. I agree that the figure is (usually) a bit nonsense. However, I don't think your phrasing is as clear as it could be. If Apple announces a 10% dividend with a 1T market cap that's $100b in distribution. If the market cap doubles to 2T later that year, that dividend payment isn't suddenly updated to $200b; it just shows up as a 5% dividend in your typical metrics.

SamBam 6y ago

Yes, I feel like more of an explanation is required. Investors in existing exchanges already understand the different metrics companies might be categorized under -- value vs growth, for example -- and this seems like "extra-long-term value." But does that require a new exchange, or just a new valuation for companies? How about an index fund that invests only in such companies? I would probably invest in a "Vanguard Long-Term Growth Fund," and I would assume that companies that got themselves on such a fund would want to stay there. Perhaps the LTSE includes new rules for things such as how often stocks can be traded, but this isn't evident from that blog post, or the first one referenced in the post.

pmart123 6y ago
In Europe, companies like LVMH and L'Oreal has bonus dividends or extra voting rights for long-term institutional shareholders already. Essentially, if you hold onto shares for over 1 year, 2 years, etc., you can offer shareholders additional incentives.
- Galanwe 6y ago
  Do you have a source for this? I don't see how that could be possible, unless they created a new share class for these long term investors. The price of the share has to be adjusted at the dividend ex date to reflect the drop of value induced by the dividend payout. If not every holder of the share class benefited from it, then this is obviously unfair. Now if you are talking about different share classes, then they would have to either be issued to current shareholders (e.g as rights issuance, in which case every shareholder could have them, long term or not), or publicly traded (same thing basically, everyone could have them, long term or not), or privately traded. In that last case, I would not really say this is "for long term investors", it's more a matter of private equity / politics / governance. Don't expect to enter that kind of deal unless you are a _big_ institutional investor.
  - cdmoyer 6y ago
    Specifics about L'Oreal. https://www.loreal-finance.com/eng/registered-shares-loyalty-bonus https://www.loreal-finance.com/eng/registered-shares-loyalty... General discussion of the concept in France. http://jpkoning.blogspot.com/2016/09/the-french-shareholder-revolution.html http://jpkoning.blogspot.com/2016/09/the-french-shareholder-... > Despite ensuing controversy in the French legislature over the fairness of elevating one class of shareholder above the rest, the ability to provide prime de fidélité was enshrined in French law in 1994, with several limits.

m12k 6y ago

I think this is less about attracting investors who think long-term than it is about telling investors who think short-term to go somewhere else.

tomhoward 6y ago

The pressure comes from investors. (The board is elected by shareholders, so in theory they represent the wishes of investors). It's extremely difficult/rare to find investors who will just sit back and trust the CEO run the company as they see fit, particularly in a world where "unicorns" are going from zero to $billions in a few years. It happens occasionally, but only in the case of extreme outlier companies where the company is already a rocketship and thus the CEO/has already proven themselves - e.g., Apple/Jobs-post-mid-2000s, Facebook/Zuckerberg. Whilst plenty of companies could reach huge scale over a longer period of time, it can be difficult for investors/outsiders (and indeed the management themselves) to know whether their company really is a slow-building long-term winner vs a zombie. Perhaps what the LTSE is doing is attracting investors who are willing to be patient over a slow/long-term build, but to also work with the companies to ensure they really are on a path to long-term success and not in zombie mode.

qeternity 6y ago
I don't know why people continuously repeat this narrative. Two of the largest companies in the world, and in the history of humankind, are constantly marched higher by this "shortsighted" investor base: AMZN and TSLA. People say companies pursue short-term gains but in reality they just mean they pursue things they disagree with. And herein lies the dirty secret: professional investors aren't short-sighted, they just don't value the things you do because (shocker) the average Joe doesn't really understand how to create shareholder value.
- Terr_ 6y ago
  > Two of the largest companies in the world Survivorship bias?
  - qeternity 6y ago
    No, because the whole premise here is that investor behavior prevents this kind of bias. You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.

einpoklum 6y ago

> Shareholders agree to all sorts of craziness if they like your company In my very limited experience, it is the _company_ which must accept all sorts of craziness from the shareholders rather than the other way around. Which is also how it stands officially... > Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA? Not clear at all that they would, if individual officers expect to have to justify short-term-losses.

x87678r 6y ago

There is no pressure. Good examples are Amazon and Tesla that make very little money and are valuable now because of their long term outlook. If you really do believe it is investors driving short term outlooks, a different exchange wont make a difference to how many investors buy the stock.

dcolkitt 6y ago

I'll give a shareholder's perspective. Management, when left unchecked, frequently engages in in wasteful empire building and prestige projects. The most apparent manifestation of this is in mergers and acquisitions. Decades of evidence shows that the median merger destroys shareholder value for the acquiring company. Imposing strong controls on corporate management is one of the most important thing that shareholders can do. This might take the form of independent boards, which aren't handpicked by the CEO. Or the removal of poison pills (which raises the threat of a hostile takeover for underperforming companies). But most important of all is the existence of transparent, consistent, regularly evaluated metrics. That means quarterly earnings targets. Like any job, CEOs need consistent feedback to keep their incentive aligned with those who employ them (shareholders). Management has shown time and time again, that when monitoring is weakened, they go off the reservation and destroy shareholder value. The good thing about earnings is that it's they're easy-to-measure, hard-to-fake tangible proof of continuing performance. In contrast stories about "long-term value" or intangible promises of future rewards are usually BS used to justify extravagant empire building while the CEO uses the company's balance sheet as his personal piggy bank. Lest anyone think that evil Wall Street shareholders are hobbling visionary CEOs, observe the rare cases when management does prove its credibility. Prime example is Amazon, which time and time again has scarified short-term earnings for long-term development. And nobody could possibly claim that it's punished by Wall Street for this. The difference is that unlike 99% of CEOs, Bezos has conclusively proven his ability and alignment with Amazon shareholders.

gogopuppygogo 6y ago
Bezos was an investment banker. Before he had the track record of long term development (only born from long term efforts) he knew how to speak Wall Street and had a track record on Wall Street. Most CEO’s will never be capitalized like him for long term empire building so it’s hard to say there couldn’t be more Amazon sized successes out there if Capital was more accessible for longer term visions.
- darkerside 6y ago
  This seems sensible. If you want the goodwill from your investors to make a long term bet like Amazon did, you need to explain it to them in terms they can understand. It's a language anyone can learn with sufficient training and experience.

rectang 6y ago

> Maybe others can elaborate on what problem is being solved here. I found these two URLs helpful in understanding how LTSE sees its role: https://www.ltse.com/faq https://www.ltse.com/faq > Q. Would companies that list on the Long-Term Stock Exchange report quarterly earnings? > A. Yes. By law, U.S. public companies are required to report earnings at least quarterly. The difference is that the listing standards of the Long-Term Stock Exchange are designed to change the narrative for success, so that the quarterly results are viewed in context as part of a long-term narrative. https://longtermstockexchange.com/listings/principles/ https://longtermstockexchange.com/listings/principles/ > Long-term focused companies should consider a broader group of stakeholders and the critical role they play in one another’s success. The focus seems to be less on constraints on traders and trading, and more on policies that companies listed on the exchange must fulfill. So the LTSE doesn't have to be the exclusive venue for trading and a company can be dual-listed on LTSE and another exchange — the mere fact that the company is listed on the LTSE gives you a crucial piece of information.