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This is maybe half right. The demand for short term maximization of profits over all others is really driven by being a public company and shareholders only bei

by starky 5y ago

This is maybe half right. The demand for short term maximization of profits over all others is really driven by being a public company and shareholders only being satisfied if they see gains that exceed the market even at the detriment of the long term viability of the company. The US stock market is better at accepting risk of than my country (Canada) where companies are really harshly punished by shareholders if they show any signs of reduced profits/revenue. Keeping inventory down is one easy way to maximize the profit as you aren't accounting for unused inventory. While it is correct that this is risky in case of supply chain bottlenecks, holding lots of inventory isn't a good solution either, because the company is now holding the risk of unsellable inventory should there be an economic downturn and people aren't buying your goods. Either one could easily sink a company. I don't have a great answer, but after what has happened over the past year, I think the solution has to involve manufacturing be better distributed throughout the planet. You greatly reduce the chances of "once in a century" events preventing your shipment of product if you can shift production elsewhere and rely on a distributed supply chain. This would be better environmentally as well as it would require significantly less shipping if things were manufactured near where they were consumed. The costs of implementing this and the complexity for companies to manage is just too high for this to practically happen.

dismalpedigree 5y ago
If you think public markets are bad at creating poor long term incentives (they are) you should see what private equity does. 10x worse.
- stingraycharles 5y ago
  It highly depends upon who’s behind the private equity. As an anecdotal example that always stuck with me, Google post-public very quickly became a very different company, much less principled and “don’t be evil”. Yet they did have private equity. I think they key difference is that you can choose to a reasonable degree who your private investors are, where there is no such option with public investors, and public markets tend to be more hostile.
  - dismalpedigree 5y ago
    Even benevolent private equity forces companies to operate on a 3-5 year time window where the PE owner needs to maximize returns over the period. Inevitably results in lots of conversations along these lines. “Yes that would be good long term but we are not investing in that because it won’t add value before we flip the company”.
qPM9l3XJrF 5y ago
I don't know a ton about finance, but isn't "value investing" another way of describing the thing Ryan is complaining about? ("Value investing" = using metrics like P/E ratio)

by starky 5y ago

dismalpedigree 5y ago

If you think public markets are bad at creating poor long term incentives (they are) you should see what private equity does. 10x worse.

stingraycharles 5y ago
It highly depends upon who’s behind the private equity. As an anecdotal example that always stuck with me, Google post-public very quickly became a very different company, much less principled and “don’t be evil”. Yet they did have private equity. I think they key difference is that you can choose to a reasonable degree who your private investors are, where there is no such option with public investors, and public markets tend to be more hostile.
- dismalpedigree 5y ago
  Even benevolent private equity forces companies to operate on a 3-5 year time window where the PE owner needs to maximize returns over the period. Inevitably results in lots of conversations along these lines. “Yes that would be good long term but we are not investing in that because it won’t add value before we flip the company”.

qPM9l3XJrF 5y ago

I don't know a ton about finance, but isn't "value investing" another way of describing the thing Ryan is complaining about? ("Value investing" = using metrics like P/E ratio)