5 ms·

I feel like there is something interesting in here but the finance jargon and writing style is obscuring it for me.

mjevans 5y ago
It was unclear for me too. Though the gist of what I understood around the jargon: Overvalued companies are driven by the stock market to have unsustainable growth, always more than before or at the very least always going up over time, even with complete market dominance. Therefore once a company caps out a market only cutting quality or civic duty corners are left and it becomes a knife-fight to the death for all involved; with more literal impacts to the workers and customers (quality of output). Even if a company COULD just allow the profit to stabilize at a long term sustainable level that would benefit everyone most overall; they won't and will instead be driven for short term results.
- hogFeast 5y ago
  Yes. Almost. But the point is explicitly not that the issue is short-termism. I am not going to go over everything again, but the issue is not solved (as everyone today thinks) by bailing people in. Look at Tesla's exec package: Elon's package is what...$100bn? He will lose money if the stock goes to zero, but that is still a very one-sided risk for him. So doing long-term packages makes no difference because the reward is all one-sided, no risk, and the fundamentals usually aren't changed. It actually makes it worse because you dangle $100m in front of someone on a base package of $500k salary...they will believe anything to get that money. So timescale isn't relevant (again, the market isn't short-term...every investor wants a "one decision stock"...you buy, hold for the rest of your life). As an example, this is why you see so much M&A...it makes no sense but you buy revenues from another company, you get growth. Execs don't care about the price, you just need growth, you just need to hit your targets. Whether they are short or long, the issue is with the incentives and target (although are wrong for a few different reasons I have already mentioned, and I haven't yet seen a company that has managed to structure pay perfectly...most just wildly overpay for very mediocre execs who add nothing).
- astrange 5y ago
  This seems to be a restatement of one of those communism things. https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...

It was unclear for me too. Though the gist of what I understood around the jargon: Overvalued companies are driven by the stock market to have unsustainable growth, always more than before or at the very least always going up over time, even with complete market dominance. Therefore once a company caps out a market only cutting quality or civic duty corners are left and it becomes a knife-fight to the death for all involved; with more literal impacts to the workers and customers (quality of output). Even if a company COULD just allow the profit to stabilize at a long term sustainable level that would benefit everyone most overall; they won't and will instead be driven for short term results.

hogFeast 5y ago
Yes. Almost. But the point is explicitly not that the issue is short-termism. I am not going to go over everything again, but the issue is not solved (as everyone today thinks) by bailing people in. Look at Tesla's exec package: Elon's package is what...$100bn? He will lose money if the stock goes to zero, but that is still a very one-sided risk for him. So doing long-term packages makes no difference because the reward is all one-sided, no risk, and the fundamentals usually aren't changed. It actually makes it worse because you dangle $100m in front of someone on a base package of $500k salary...they will believe anything to get that money. So timescale isn't relevant (again, the market isn't short-term...every investor wants a "one decision stock"...you buy, hold for the rest of your life). As an example, this is why you see so much M&A...it makes no sense but you buy revenues from another company, you get growth. Execs don't care about the price, you just need growth, you just need to hit your targets. Whether they are short or long, the issue is with the incentives and target (although are wrong for a few different reasons I have already mentioned, and I haven't yet seen a company that has managed to structure pay perfectly...most just wildly overpay for very mediocre execs who add nothing).
astrange 5y ago
This seems to be a restatement of one of those communism things. https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...