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Our major system for evaluating companies is market-driven pricing of the company. That in turn is based mostly on the views of investors and traders, that is p

Our major system for evaluating companies is market-driven pricing of the company. That in turn is based mostly on the views of investors and traders, that is people who want to turn money into more money and generally aren't fussy about how it happens. So the market price for a company tends to favor short-term cash extraction over long-term value creation. That is to say, this is basically what our "system of evaluating public corporations" rewards, and it's been that way for quite some time. We're just paying more attention here because lots of us fly and airline crashes capture the attention nicely. When Facebook enshittifies to juice revenues we all just kind of put up with it, but we're not so chill about a window blowing out at 15,000 feet.

WalterBright 3y ago
> So the market price for a company tends to favor short-term cash extraction over long-term value creation. Would you buy stock in a company that does this? Why do you think others would?
- chii 3y ago
  if you buy stock, but sell before others realize, then may be? If you could sniff out the quality momentum/inertia that the company is deriving revenue from, and sell shortly before it starts dropping, you'd have made profit.
  - WalterBright 3y ago
    > if you buy stock, but sell before others realize, then may be? How is one going to keep that secret long term?
- wpietri 3y ago
  I think others would for the reason described in sentence directly before it. Which, as "so" indicates, is the logical predecessor. I used to write code for financial traders. I promise you that there are a lot of people who do not give half a shit what a company's up to as long as they can buy it for $100 and sell it later for $101. And based on infinite news reports, we can all see there are plenty of CEOs who will do pretty much anything that will boost the stock price in the short term so that they get to keep their jobs longer.
  - WalterBright 3y ago
    > I promise you that there are a lot of people who do not give half a shit what a company's up to as long as they can buy it for $100 and sell it later for $101. I'm sure there are. But you gotta fool the investors to make this work. The presumption that investors are stupid doesn't sound that plausible.
    - wpietri 3y ago
      Depends on which proposition. Remember that that once they've sold it, they have no further exposure. So if what's happening is looting a company, then as long as they get out before the rot becomes obvious, they don't care. And no investor has to be stupid for this to work. You just need some investors who are smarter, better informed, better prepared, or more experienced than others. And that's no presumption at all. If you talk to experienced people in the industry, they know that their living comes out of the pockets of other people's pockets. Literal billions of dollars are invested every year in being the winner in zero-sum games in finance. That said, plenty of investors are stupid and/or naive enough. Boeing's a fine example here. As it WeWork. Or DJT. Or literally any pump and dump or Ponzi scheme. Or nearly all of crypto. If you're really struggling to understand this, I suggest Dan Davies' "Lying for Money". Because parasitical actors assuming that investors are stupid enough is a huge, multi-century activity.
imperfect_light 3y ago
>So the market price for a company tends to favor short-term cash extraction over long-term value creation. Then why did markets favor companies that literally made no profits for years, Amazon and Uber being examples?
- wpietri 3y ago
  If your point is that generalizations aren't universals, I agree. That's why I said "tends to". I further agree that markets like more than one thing, and you can see that with things like "growth stocks", "meme stocks", and "pump and dumps". Amazon is particularly notable for how long and how energetically they resisted investor pushes to take short-term gains. They were famous for it, or perhaps notorious. So although it's a counterexample to my point, it's also great proof of it. Opinions differ on Uber, but personally I think of it (and WeWork) as pump and dumps. After Facebook and Google ended up with quasi-monopolies, investors were hungry for another "to the moon" technology stock. I should say that was true of both VCs and retail investors. The VCs saw an opportunity to make things that looked vaguely Google-shaped, which they did, trying to sell them off to the general public before anybody caught on. They succeeded with Uber and failed with WeWork. But in both cases, it's still VCs favoring short-term cash extraction over long-term value creation.

WalterBright 3y ago

> So the market price for a company tends to favor short-term cash extraction over long-term value creation. Would you buy stock in a company that does this? Why do you think others would?

chii 3y ago
if you buy stock, but sell before others realize, then may be? If you could sniff out the quality momentum/inertia that the company is deriving revenue from, and sell shortly before it starts dropping, you'd have made profit.
- WalterBright 3y ago
  > if you buy stock, but sell before others realize, then may be? How is one going to keep that secret long term?
wpietri 3y ago
I think others would for the reason described in sentence directly before it. Which, as "so" indicates, is the logical predecessor. I used to write code for financial traders. I promise you that there are a lot of people who do not give half a shit what a company's up to as long as they can buy it for $100 and sell it later for $101. And based on infinite news reports, we can all see there are plenty of CEOs who will do pretty much anything that will boost the stock price in the short term so that they get to keep their jobs longer.
- WalterBright 3y ago
  > I promise you that there are a lot of people who do not give half a shit what a company's up to as long as they can buy it for $100 and sell it later for $101. I'm sure there are. But you gotta fool the investors to make this work. The presumption that investors are stupid doesn't sound that plausible.
  - wpietri 3y ago
    Depends on which proposition. Remember that that once they've sold it, they have no further exposure. So if what's happening is looting a company, then as long as they get out before the rot becomes obvious, they don't care. And no investor has to be stupid for this to work. You just need some investors who are smarter, better informed, better prepared, or more experienced than others. And that's no presumption at all. If you talk to experienced people in the industry, they know that their living comes out of the pockets of other people's pockets. Literal billions of dollars are invested every year in being the winner in zero-sum games in finance. That said, plenty of investors are stupid and/or naive enough. Boeing's a fine example here. As it WeWork. Or DJT. Or literally any pump and dump or Ponzi scheme. Or nearly all of crypto. If you're really struggling to understand this, I suggest Dan Davies' "Lying for Money". Because parasitical actors assuming that investors are stupid enough is a huge, multi-century activity.

imperfect_light 3y ago

>So the market price for a company tends to favor short-term cash extraction over long-term value creation. Then why did markets favor companies that literally made no profits for years, Amazon and Uber being examples?

wpietri 3y ago
If your point is that generalizations aren't universals, I agree. That's why I said "tends to". I further agree that markets like more than one thing, and you can see that with things like "growth stocks", "meme stocks", and "pump and dumps". Amazon is particularly notable for how long and how energetically they resisted investor pushes to take short-term gains. They were famous for it, or perhaps notorious. So although it's a counterexample to my point, it's also great proof of it. Opinions differ on Uber, but personally I think of it (and WeWork) as pump and dumps. After Facebook and Google ended up with quasi-monopolies, investors were hungry for another "to the moon" technology stock. I should say that was true of both VCs and retail investors. The VCs saw an opportunity to make things that looked vaguely Google-shaped, which they did, trying to sell them off to the general public before anybody caught on. They succeeded with Uber and failed with WeWork. But in both cases, it's still VCs favoring short-term cash extraction over long-term value creation.