5 ms·

Of course none of that enters the discussion anywhere. It's just assumed that seeking short term profit is the natural thing to do.

WalterBright 6y ago
> seeking short term profit is the natural thing to do Successful companies clearly seek the long term profit. Amazon, Apple, Microsoft, Tesla, how many examples are needed?
- EliRivers 6y ago
  Well yes they do, Mr Bright, but it's still true that seeking the short-term profit seems (for many) the natural thing to do. How often do we even see people carrying the belief that companies have a legal obligation towards "shareholder value" that trumps all other concerns?
  - WalterBright 6y ago
    > (for many) the natural thing to do For bad businessmen, yes. They get rewarded by going out of business. > How often do we even see people carrying the belief that companies have a legal obligation towards "shareholder value" that trumps all other concerns? A focus on short term value destroys shareholder value. There is no legal obligation for a company to sacrifice the long term for the short term. Would you invest your money in a company you believed was focused on short term shareholder value rather than long term? Keep in mind that the stock price reflects the best estimation of the future long term prospects of the company.
    - EliRivers 6y ago
      Keep in mind that the stock price reflects the best estimation of the future long term prospects of the company. I definitely disagree with that. I think we can see many, many counter-examples; so many that they're not weird exceptions but a significant part of the picture. Take the recent fun and games with Gamestop, or Hertz, for example. The best estimation of Hertz at the time was that they were going out of business (or at least going through one of the uniquely American phases of a business in which their debts get cancelled, the bankruptcy exit plan leaves shareholders with nothing, and Hertz gets to carry on); yet the share price kept on climbing (perhaps the most common estimation of people involved in buying Hertz shares was that they had a rosy future).
      - WalterBright 6y ago
        Many many examples? The GME thing was unique, which is why it was in the news. It was a short squeeze. It was in the news for days, meaning it is an aberration. As for the Hertz thing, which I know nothing about, it sounds like the buyers thought the stock had long term upside potential.
        EliRivers 6y ago
        It's fascinating and well worth a read. Back in June or so, Hertz was going bankrupt. Their stock was going up anyway, trading volume was way up. Hertz decided to ride that wave and asked to make a new stock offering so that people would give them a whole bunch of money right before they went bankrupt. In the paperwork to apply for a new stock offering, they openly said that they were going bankrupt (hell, they asked their bankruptcy court for permission to make a new stock offering!) and their stock was going to become worthless very soon (I understand the SEC thought about the act of selling new stock to rubes as one final payday, and after conversation between them and Hertz, Hertz withdrew the application to sell new stock in a company that openly said it was going bankrupt). Their stock kept going up. They'd openly said they were going out of business (soon after that their stock did indeed become worthless), and they were telling people this, and the stock went up anyway. It seems that the majority of buyers were buying it based not on analysis or on any real idea of future earnings. The best estimation of the future long term prospects of the company was that they'd go bankrupt and all shares would become worthless; yet the share price was yomping upwards because a terrible estimation of the future long term prospects of the company was that they must be recovering because, hey look, they want to sell some new shares! I guess where this is going is that I say that the price of a stock reflects the current price at which you could probably buy or sell one of that stock (assuming there's a market for it), and any interpretation of its meaning beyond that comes with caveats and conditions. Sure, often, there's some kind of link to the company's "value" or "potential future earnings" or some such, but by no means always and to make a blanket assertion that the stock price "reflects the best estimation of the future long term prospects of the company" is a dangerous simplification. Many many examples? Yes, I think so. Stock price is the market price; it's not set by anyone based on careful analysis. Some people decide the price they're willing to pay based on analysis, but the actual price is pretty much by definition what people are willing to pay for it, which has no inherent link to what it's "worth".
perl4ever 6y ago
The article is discussing how seeking short term profit may not be the natural thing to do when most public companies are owned largely by index funds. It's not the first one, either. So I'm not introducing that into "the discussion" nor is this article. I'm not advocating or asserting that it has good consequences either. I'm saying it's weird that when people speculate, they don't speculate about a class of consequences of their new view. It is a fact that the major index funds have been putting a little pressure on companies to be more socially responsible, and regardless of whether this is only performative and insignificant, it demonstrates that they could promote whatever one thinks is good for society at the expense of individual profits. So leaving any reference to it out is an odd oversight. Again, I'm not claiming that common ownership of all the companies is good, or that the funds are doing meaningful good. But a reasonable article would say something about the possibilities to promote the things that people want companies to do that ameliorate competition. Activists are trying to pressure the funds. That's not an opinion, it's a fact. I believe Matt Levine has written about this from time to time, so really I'm asking why other journalists aren't as fair and balanced as he is.

WalterBright 6y ago

> seeking short term profit is the natural thing to do Successful companies clearly seek the long term profit. Amazon, Apple, Microsoft, Tesla, how many examples are needed?

EliRivers 6y ago
Well yes they do, Mr Bright, but it's still true that seeking the short-term profit seems (for many) the natural thing to do. How often do we even see people carrying the belief that companies have a legal obligation towards "shareholder value" that trumps all other concerns?
- WalterBright 6y ago
  > (for many) the natural thing to do For bad businessmen, yes. They get rewarded by going out of business. > How often do we even see people carrying the belief that companies have a legal obligation towards "shareholder value" that trumps all other concerns? A focus on short term value destroys shareholder value. There is no legal obligation for a company to sacrifice the long term for the short term. Would you invest your money in a company you believed was focused on short term shareholder value rather than long term? Keep in mind that the stock price reflects the best estimation of the future long term prospects of the company.
  - EliRivers 6y ago
    Keep in mind that the stock price reflects the best estimation of the future long term prospects of the company. I definitely disagree with that. I think we can see many, many counter-examples; so many that they're not weird exceptions but a significant part of the picture. Take the recent fun and games with Gamestop, or Hertz, for example. The best estimation of Hertz at the time was that they were going out of business (or at least going through one of the uniquely American phases of a business in which their debts get cancelled, the bankruptcy exit plan leaves shareholders with nothing, and Hertz gets to carry on); yet the share price kept on climbing (perhaps the most common estimation of people involved in buying Hertz shares was that they had a rosy future).
    - WalterBright 6y ago
      Many many examples? The GME thing was unique, which is why it was in the news. It was a short squeeze. It was in the news for days, meaning it is an aberration. As for the Hertz thing, which I know nothing about, it sounds like the buyers thought the stock had long term upside potential.
      - EliRivers 6y ago
        It's fascinating and well worth a read. Back in June or so, Hertz was going bankrupt. Their stock was going up anyway, trading volume was way up. Hertz decided to ride that wave and asked to make a new stock offering so that people would give them a whole bunch of money right before they went bankrupt. In the paperwork to apply for a new stock offering, they openly said that they were going bankrupt (hell, they asked their bankruptcy court for permission to make a new stock offering!) and their stock was going to become worthless very soon (I understand the SEC thought about the act of selling new stock to rubes as one final payday, and after conversation between them and Hertz, Hertz withdrew the application to sell new stock in a company that openly said it was going bankrupt). Their stock kept going up. They'd openly said they were going out of business (soon after that their stock did indeed become worthless), and they were telling people this, and the stock went up anyway. It seems that the majority of buyers were buying it based not on analysis or on any real idea of future earnings. The best estimation of the future long term prospects of the company was that they'd go bankrupt and all shares would become worthless; yet the share price was yomping upwards because a terrible estimation of the future long term prospects of the company was that they must be recovering because, hey look, they want to sell some new shares! I guess where this is going is that I say that the price of a stock reflects the current price at which you could probably buy or sell one of that stock (assuming there's a market for it), and any interpretation of its meaning beyond that comes with caveats and conditions. Sure, often, there's some kind of link to the company's "value" or "potential future earnings" or some such, but by no means always and to make a blanket assertion that the stock price "reflects the best estimation of the future long term prospects of the company" is a dangerous simplification. Many many examples? Yes, I think so. Stock price is the market price; it's not set by anyone based on careful analysis. Some people decide the price they're willing to pay based on analysis, but the actual price is pretty much by definition what people are willing to pay for it, which has no inherent link to what it's "worth".

perl4ever 6y ago

The article is discussing how seeking short term profit may not be the natural thing to do when most public companies are owned largely by index funds. It's not the first one, either. So I'm not introducing that into "the discussion" nor is this article. I'm not advocating or asserting that it has good consequences either. I'm saying it's weird that when people speculate, they don't speculate about a class of consequences of their new view. It is a fact that the major index funds have been putting a little pressure on companies to be more socially responsible, and regardless of whether this is only performative and insignificant, it demonstrates that they could promote whatever one thinks is good for society at the expense of individual profits. So leaving any reference to it out is an odd oversight. Again, I'm not claiming that common ownership of all the companies is good, or that the funds are doing meaningful good. But a reasonable article would say something about the possibilities to promote the things that people want companies to do that ameliorate competition. Activists are trying to pressure the funds. That's not an opinion, it's a fact. I believe Matt Levine has written about this from time to time, so really I'm asking why other journalists aren't as fair and balanced as he is.