4 ms·

Why would the board care about the 10 year health of a public traded company, If that same board could profit on the short term gains and get out before it tank

Why would the board care about the 10 year health of a public traded company, If that same board could profit on the short term gains and get out before it tanks? When the board members taking their gains and re-investing them in other companies to then repeat this strategy.

lend000 5y ago
I think the solution is in reforming capital gains taxes. You should only get the discount on taxes if you hold for 5+ years. And even then, the brackets should be more progressive for extreme (e.g. hundreds of millions) in income.
- mwint 5y ago
  Overall, these two changes would incentivize holding stocks <1 year more often than people do currently. Perhaps you could get a longer-term effect if you had another, lower tax level at 5+ years, or raised moderately the 1+ year cap gains rate and moved the current one to 5 years.
  - lend000 5y ago
    That's fine with me -- they shouldn't get a discount if it isn't a long term investment.
    - mwint 5y ago
      There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings. With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
      - lend000 5y ago
        I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.
        bin_bash 5y ago
        This is what happens after you hold a stock for 12 months: https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp https://www.investopedia.com/articles/personal-finance/10151...
    - seanmcdirmid 5y ago
      Why not just treat all stock investment like 401k’s: taxed as income when selling, tax deductible when buying? The deferred income tax still provides an incentive to invest, yet you don’t get a tax break when selling (unless you happen to be in a lower tax bracket between then and and when you sell).
DennisP 5y ago
One possible solution: weight shareholder votes by how long they're willing to lock up their shares. There's still an agency problem between the shareholders and board members, but at least the shareholder votes will be weighted for the long haul. Locked shares would have to be held in a way that prevents wrapping them in a salable derivative.
- dilipdasilva 5y ago
  This is a good idea along with progressively decreasing taxes based on how long you hold the shares. They could go down every year all the way to 5% at 10 years. This would have a significant impact on encouraging long-term investing for investors and long-term planning for companies. This should apply only to shares in individual companies and not index funds or mutual funds. It would also encourage a shift away from short-term speculation and to long-term investing in great companies.
  - DennisP 5y ago
    Hadn't heard that one before, that's fantastic.
  - tpxl 5y ago
    > This is a good idea along with progressively decreasing taxes based on how long you hold the shares. They could go down every year all the way to 5% at 10 years. Where I live stocks profits are taxed at 20% at first, then 5% less for each 5 years you hold them, down to 0 taxation after 20 years.
    - RandomBK 5y ago
      That sounds amazing! Where is this?
  - adrianN 5y ago
    It would also mean that sufficiently rich people pay only 5% taxes on their income.
closeparen 5y ago
How would investors tell the difference between executives that are actually optimizing for ten year health, vs. executives who are floundering and using fake long-termism as an excuse to delay accountability? Ten years is a long time to wait to find out if a strategy works or not.

lend000 5y ago

I think the solution is in reforming capital gains taxes. You should only get the discount on taxes if you hold for 5+ years. And even then, the brackets should be more progressive for extreme (e.g. hundreds of millions) in income.

mwint 5y ago
Overall, these two changes would incentivize holding stocks <1 year more often than people do currently. Perhaps you could get a longer-term effect if you had another, lower tax level at 5+ years, or raised moderately the 1+ year cap gains rate and moved the current one to 5 years.
- lend000 5y ago
  That's fine with me -- they shouldn't get a discount if it isn't a long term investment.
  - mwint 5y ago
    There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings. With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
    - lend000 5y ago
      I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.
      - bin_bash 5y ago
        This is what happens after you hold a stock for 12 months: https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp https://www.investopedia.com/articles/personal-finance/10151...
  - seanmcdirmid 5y ago
    Why not just treat all stock investment like 401k’s: taxed as income when selling, tax deductible when buying? The deferred income tax still provides an incentive to invest, yet you don’t get a tax break when selling (unless you happen to be in a lower tax bracket between then and and when you sell).

DennisP 5y ago

One possible solution: weight shareholder votes by how long they're willing to lock up their shares. There's still an agency problem between the shareholders and board members, but at least the shareholder votes will be weighted for the long haul. Locked shares would have to be held in a way that prevents wrapping them in a salable derivative.

dilipdasilva 5y ago
This is a good idea along with progressively decreasing taxes based on how long you hold the shares. They could go down every year all the way to 5% at 10 years. This would have a significant impact on encouraging long-term investing for investors and long-term planning for companies. This should apply only to shares in individual companies and not index funds or mutual funds. It would also encourage a shift away from short-term speculation and to long-term investing in great companies.
- DennisP 5y ago
  Hadn't heard that one before, that's fantastic.
- tpxl 5y ago
  > This is a good idea along with progressively decreasing taxes based on how long you hold the shares. They could go down every year all the way to 5% at 10 years. Where I live stocks profits are taxed at 20% at first, then 5% less for each 5 years you hold them, down to 0 taxation after 20 years.
  - RandomBK 5y ago
    That sounds amazing! Where is this?
- adrianN 5y ago
  It would also mean that sufficiently rich people pay only 5% taxes on their income.

closeparen 5y ago

How would investors tell the difference between executives that are actually optimizing for ten year health, vs. executives who are floundering and using fake long-termism as an excuse to delay accountability? Ten years is a long time to wait to find out if a strategy works or not.