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A Plan for a Long-Term Stock Exchange (bloomberg.com)
270 points by jackgavigan on June 13, 2016 | hide | past | web | favorite | 114 comments



I like where this is going - you want to apply some pressure to organizations to set up internal incentives that push for longer-term thinking. But if the value of being on the LTSE is that it sends a signal that your org is optimized for the long term, couldn't you accomplish some of that function with a voluntary certification process, instead of a whole new stock exchange?

Like, why not just publish a version of the famous Joel Test (http://www.joelonsoftware.com/articles/fog0000000043.html), but for management incentives compatible with long-term thinking? Then companies can submit to voluntary review (maybe with a nominal fee) by your Long-Term Business Bureau, and you can issue certifications for ones that meet certain standards. Your go-to-market strategy is the same - you can target mid-sized startups that are looking to differentiate themselves and hoping one or two of them grow into norm-setting behemoths, but you don't have to ask those companies to jeopardize their (and their investors') liquidation strategies.


Nailed it. The problems they're trying to address are entirely in the realm of corporate governance. None of their stated aims require a new exchange.


I'm not sure if they're planning this or not, but one thing a new exchange could do is quantize the trading. I have seen serious suggestions that having trades execute only on the hour, or even as radically as once per day, could perhaps significantly reduce the short-term focus of the stock. The idea here is to greatly reduce the influence of the stock's price movement on its own price. Since that sentence probably looks like a typo, let me say it another way: Stock prices react to information, and one of the loudest and most continuous bits of information is the stock's own minute-by-minute motion, far dominating things like "press releases", actual news, or quarterly reports for which it is sensible to see significant motion on the stock price.

Even if people set up the inevitable backchannels or side markets, the fact that shares can only change hands once per day may still have a significant impact on the shape of the market, even if it isn't perfect.


I had the pleasure of attending a talk about "Combinatorial Auctions"[1] lately which describes some interesting market designs that might apply here. In particular, there are some designs out there for "multi-round" auctions, and some great reading on how those work out. On-the-hour trading schemes would be essentially the same.

I can't find slides for the talk (just [2]), but there's also some really interesting publications reviewing outcomes when auctions like this were used to deal out resources to big companies who really had an incentive to do their math: http://ftp.cramton.umd.edu/papers2000-2004/cramton-schwartz-...

---

[1] http://sessions.minnestar.org/sessions/336

[2] http://markgritter.livejournal.com/747077.html


In addition to the speed of trades in the market itself is also some determination of the reporting structure of companies within the market. It's taken as de facto market requirement in the existing markets that companies report earnings to shareholders not less than once per quarter year (if not attempt to produce dividends to shareholders each quarter on the dot). Shareholder expectations of those quarterly earnings reports drive a lot of business decisions and subsequently a lot of business thinking seems to be driven by "quarterly thinking" where they'll make decisions that are dumb in the long term but will gain shareholder kudos in the immediate quarter.

I would think that a long-term-focused market could also attempt to control and slow down things like earnings reporting periods and expected investor dividend earnings pay out timings.


"Everyone's being told, 'Don't go public,'" Ries said. "The most common conventional wisdom now is that going public will mean the end of your ability to innovate."

I thought no one went public because going public requires you to divulge revenues.


> "Everyone's being told, 'Don't go public,'" Ries said.

In my experience, If there is consensus around something, it's often a great idea to do the opposite.

I decided to take my company public last year and it has been exactly the right thing for us. As far as I can see it, there is absolutely no reason to wait if your company and your team is ready.


With a tiny chance you might answer, I'm curious.. how did Shopify come about? Did you start an eCommerce store yourself, have bad luck, but then say "hey we could take all this tech we just built and sell that instead"? Or was shopify always the goal?


Exactly as you said. I build a online store to sell Snowboards back in 2004. The business worked really well but the software was clearly even better. The snowboards ended up financing building Shopify. The first checkin into the Shopify git repository was the first checkin to the original online store (although I used Darcs as SCM back then, I converted the history over to Git ).

We actually put together a mini documentary about Shopify for our IPO Roadshow: https://www.youtube.com/watch?v=QYl8iwD-6tk It's worth the watch if you are into this kind of thing. We decided to do this because Shopify grew out outside of the Silicon Valley sphere and wasn't that well known before our IPO. That has clearly changed since.


That documentary was really interesting and beautifully shot.

I refer a whole bunch of stuff towards shopify since I get inquiries about building e-commerce stuff all the time where they have some money but not enough to make it worth doing a bespoke solution and frankly unless they want to drop serious money your platform is always going to be better.

I'm over in the UK and I saw a talk a while back by one of the shopify guys (Keir Whitaker iirc, it was a couple of years ago) that was superbly well done which made me look at the platform.


Interesting you mentioned the marketing/exposure benefit aspect of going public. This point is overlooked a lot.


How did you approach getting your first customers when you had an MVP?


I developed an early (technical) following because I was one of the people behind Ruby on Rails. That lead to the first few customers because technical people are often asked for recommendations for software. Keep in mind this was in 2006, a very different time from today.


Awesome. If you had to do it all over again, do you think you could have been successful with Shopify if you'd started today?


Building companies is 90% luck (timing, competition, demand, macro trends, technology penetration, also health & passion of the team). So... I doubt it.


> if your company and your team is ready.

And what does that look like?


Right, that's the key question. In my case, it just felt that way one day.

Running a Public company looks like a daunting task before you are ready, and it doesn't look like a big deal after you are ready. Building a company is a journey of personal growth, at some point your personal growth as a leader takes you past the point where a IPO looks daunting. Then you make your move.


Maybe. I worked for a time with Epic Systems, which is an EMR company that saw record growth in the 2000's, and they're still privately traded today because they didn't want to focus on the bottom line.

Anyone in the know could possibly argue that the CEO is also a control freak, but she's used that control to keep the company focused on a high-quality/safe user experience for patients, which isn't a bad thing IMO.


I also worked at Epic for a while; CEO was definitely a control freak at that time. I consider it very likely that she has not changed in that respect.

I was promised employee stock at hiring. The company shortly thereafter reneged and substituted a "shadow stock" plan. The rationale I was given explicitly mentioned that having too many private stockholders would trigger mandatory financial reporting, and that the company would rather give me the finger than its balance sheet.

It was just one of the many reasons why I left. The company was fueled entirely by the inherent brokenness of the US health care complex. It seemed to be metaphorically powered by shoveling fat stacks of $100 bills directly into the fireboxes of pre-Watt Newcomen steam engines. They didn't even bother with the seemingly simple expedient of converting the $100 bills into $1 bills to increase the available fuel supply.

The end product that was visible to the customer was good, but it almost certainly cost several orders of magnitude more to produce it than was strictly necessary.


> The end product that was visible to the customer was good

This would be news to my wife (a surgeon), or any one of her coworkers. The software is universally viewed as terrible by everyone I've talked to. It actively results in worse records because (at least as configured) it's so cumbersome to use that many notes are frequently kept out of the system. A management plan that takes seconds to explain verbally requires minutes of data entry.


The thing about Epic Hyperspace is that it's polarizing for those who work in the medical profession.

You either love it or you hate it, and the physicians who hate it typically hate it because of what you said - they're suddenly having to type their own notes into a computer rather than dictate it to someone else.

Personally I'm of the opinion that doctors doing their own data entry is better for liability and malpractice reasons, but I empathize with your wife and people who hate doing it.


I don't think it's quite so cut-and-dried. A lot of the anti-EPIC sentiment I hear (digital health founder here, wife is a physician at a major medical center) is kept pretty separate from the anti-notes sentiment (which is equally loud).

Instead, the EPIC complaints are about the UI and workflow, which was modeled after the typical paper H&P (history & physical) forms clinicians would traditionally fill out. It comes down to the same UX lessons we've learned about most offline-to-online form transitions: directly porting a form is rarely the answer.

The anti-note sentiment has to do with the fact that they're copying-and-pasting from previous notes (often the vast majority of a note's content is pasted in), they're using MS Word to draft the notes because of a buggy editor UI, and then when they're in a situation they actually have to read the note, they're sifting through a pile of duplicated, pasted content.

There's a ton of opportunity for change here. There's an equal amount of risk involved, and selling these types of products into healthcare is about as fun as removing your fingernails. That's the piece EPIC does well, and why they're still a behemoth, even if their product is a five out of ten.


Watch your doctor doing his own "data entry" next time.

First, he'll spin away from you on his stool. Then touch a keyboard with his boogerhooks to re-log-in. (A shared KEYBOARD in a room of transient often-sick people ... did you ever do the biology experiment in high school where you swab surfaces and inoculate a petri dish? The keyboards came out worse than the toilet seats.) Then he'll mouse around on a bunch of screens showing inconsistent or at the least confusingly presented data (listing, for example, all medications you've ever been prescribed with no obvious way to highlight which ones are current). Finally he'll find the right text box for the notes.

As your doctor types in this text box, various auto-completes will come through. Your doctor will then choose from these auto-complete options, which generally make a mockery of the English language and basic grammatical agreement (gender pronouns, etc.).

The idea that Epic has empowered, or even in any benign way nudged, doctors to begin doing as good a job of data entry as they once did of dictation and charting is just complete hooey.

I have also personally had a physician using Epic Hyperspace enter an incorrect immunization for my then months-old child. This doctor in fact had the correct immunization schedule for children memorized and could have written it out longhand perfectly. But it wasn't until the next visit that they detected the out-of-order sequencing of the immunization series. This was perhaps not the fault of Epic, exactly, but was certainly mediated through Epic Hyperspace and it did absolutely nothing to prevent, flag, or otherwise mitigate this completely detectable, violation-of-deterministic-formula situation. (Everyone was fine and no harm ... this time.)

Way off the original topic, here, but let's just say regarding Epic -- whatever it is that's driving adoption of that system is not naively comprehensible to those of us coming from tech/software. It's not quality, cost, UI/UX, safety/accuracy, interoperability, standards, network effect, viral effect, or the rest.

Yet, whatever Epic is doing (or whatever esoteric motive their buyers have), it seems to be turning out well for Epic.

So attempting a tie-back to the OP -- it's not clear that long-termism of a business necessarily has any salutary effects on the rest of the world.


The data entry just gets dumped on residents, adding to their already absurd workload (and realistically gets done at the very end of their shift after being on call for 24-30 hours). There is no plausible way that this results in better accuracy.

The idea is great, but it just runs into an absolute brick wall of realities of the health care system and human behavior.


Has your wife ever come up with solutions? I've thought about trying to solve this data-entry problem in healthcare before, but it seems to be almost an admin/process issue.


i think you can dump audio files into dragon(nuance) and get the transcript back for data entry.


Yeah, I almost mentioned dragon but I didn't because I wanted to avoid anchoring the question. They seem to be (or were) a market favorite.


Yes but doing that takes some time, and then correcting the numerous errors takes more time. So it's not necessarily more cost effective than using template data entry forms. Some doctors now dictate, and then rely on transcription services which use speech recognition to generate a rough draft followed by human transcriptionists to fix most of the errors.


The thing that makes EMRs actually hard to pull off is that each hospital wants to implement its own workflow. So EMRs are less off the shelf software and more a toolkit that an army of implementers can use to encode a hospitals workflow into software. I don't have any experience with EPIC but got to watch a slow motion train wreck that was a Cerner implementation. Every department wanted everything customized just the way it wanted and there wasn't any introspection into if what they were doing was even the "right" or best way.

The problems with EMRs are really just a symptom of a real problem in medicine which that every department head wants to do things their own way. And there isn't really a good way of selecting which is best amongst the various processes/methods. The more prestigious the institution the larger this problem typically is.


My wife, also a surgeon, had a slightly different report. Of the 3 EMRs she has used, she said Epic's sucked the least. A low bar to clear, but they must be doing something right, or at least less wrong than the competition.


Ha! I said "customer", not "end user". The customer is the hospital and/or HMO administrator!

And I used "good" to damn with faint praise. It generally meets customer requirements, and probably doesn't cause as much iatrogenic harm as whatever systems it replaces. For what it costs, I would personally expect quite a lot more out of it than it delivers.

But there's only so much you can do with a perpetual parade of recent college graduates that generally turn over after about 2 years.


Yeah, the stock "options" were a joke, but it's decent experience and pay for entry level, which they hire in droves.

I only recommend working there to people if they're right out of college and not in an engineer role, since their MUMPs/Cache stack is pretty dated.


every engineer i ever met from EPIC was fresh out of school, one of them told me thats almost entirely what they hire.


Again I definitely don't recommend it for engineers. They'll get locked in on their tech stack since that's their experience and no major tech company uses it anymore.

For entry-level business roles they tend to be better suited, especially those looking to go the consulting route.


And that's by design of the CEO, who explained (paraphrasing) that such people are far more eager to drink her personal flavor of the corporate Kool-Aid if they haven't already been tainted by tasting someone else's.


I'm glad you're reaffirming the thoughts I had back in 2010 when, after the phone screening, I was invited for an on-campus interview to which I said no after reading some scathing reviews online.

I very distinctly remember it seeming a bit like a cult with the overbearing CEO that answers to no one creating a sprawling campus out in rural Wisconson that's so comfortable and with so many amenities you'd never want to leave!

Sounds like I made the right choice to decline, even though I'm currently working for a private company with the same type of CEO, only with revenues at half of one percent of Epic. But hey, I read a couple of weeks ago that they were hiring a sushi chef, and I do love sushi!


It's not exactly rural Wisconsin. It's effectively in a suburb on the the southwest side of Madison. Rural Wisconsin is at least a 15 minute walk from the parking lot.

The Epic campus is very close to the epicenter of the best place for a typical HN reader in Wisconsin. Since the UW-Madison campus is on the west side of town, the geometry of the lakes almost assures that people who work in high tech businesses or academia commute in from the southwest quadrant, if they don't live in the city proper: Cross Plains, Middleton, Verona, Fitchburg, Oregon.

I loved living in/near Madison for the 6 months of the year that it wasn't either winter or unsubtly hinting that Mr. Winter had only just stepped out for a moment, and would likely be back any minute now to finish hitting my other kneecap with a lead-free pipe and then drag me around on a chain behind his Prius for a bit.

The immediate environs are great. But I had to leave for financial reasons.

If you have the opportunity to take a job in Madison, Wisconsin, that is not with Epic, do consider it.


> If you have the opportunity to take a job in Madison, Wisconsin, that is not with Epic, do consider it.

Shameless plug! https://forteresearch.com/


6 months?! My experience was closer to 4, 5 in good years and 3 in bad.

But summers were idyllic.


they are also heavily propped up by the fact the gov will cover a large portion of the costs of install and migration. if these costs wasn't covered or subsidized, i believe the picture would look very different.


...and monopolistic control over that EMR via no HL7 integration.


Epic Bridges sends/receives HL7 messages to just about any software with an interface. I'm not sure what you're talking about.


I wasn't on the team that implemented this at a large healthcare provider, but i remember that team bitched about it a lot. its also mentioned as a compliant on EPICs wikipedia article.


That's because healthcare interfaces are terribly difficult to work with, because they're the worst of two worlds - mountains of bureaucracy mixed with different tech stacks from different eras.


You don't have to search too hard to read horror stories about interfacing with Epic. In practice EMR vendors are financially disincentivized from interfacing with anyone.

To your point, why, specifically, is it so difficult to interface with these systems? Could it be by design?


Right, because you're searching for stories about interfacing with Epic and they have 50% of the patient marketshare. That's how appeals to popularity work.

You still didn't elaborate on why you said Epic has no HL7 integration.


In addition to that, they are well underway to supporting HL7 FHIR (the new version of HL7).


When I can do bidirectional programmatic interface to Epic let me know. I won't hold my breath.


Stop it you're breaking the narrative.


I guess it's not only a matter of revenues. I don't think Uber really cares about divulging revenue - they've done it over the last months for some geographies to prove they're right. I think they care more about where the focus must be = if you're private, you can keep growing without thinking too much about the bottom line/EBIT/EBITDA; when you're public, that's another story, investors (not only individuals) carry about dividends to make their ROI - of course value of the stock is another key element


I have heard that there is the impression that the values they have gotten from private investors(i.e. VC) are higher than they would get on the open market. Which means either VCs are much better at investing than the market at large or there is a bubble(or a bit of both).



Those two things are related: oftentimes, being innovative in ways that might, in the future, unlock huge revenue opportunities, can make short term revenues look pretty bad. Imagine Google reporting revenue prior to the launch of AdWords.


Divulging revenues is not bad in and of itself, but when executive compensation is tied to market performance you have a problem. LTSE, as described in the article, is doing a lot more to combat that problem than just being long term.


Accounting innovation is still innovation.


Because they're too busy chasing the QER.


> granting stronger voting rights to long-term shareholders would make takeovers harder,

That sounds like a reasonable idea, but I think it fails to see how capital markets work.

The thing is, voting rights can be sold. If you create different voting rights with weights, you will just create different prices for different voting rights. It will make things unnecessarily complicated, and if you try to prohibit some kinds of voting rights to be sold, you will likely just fuel a black market.

Can a 10-year voting right be sold? In theory you can't, since as soon as the share changes hands, it would become a 0-year voting right. Except the voter can sell his right in a different way, that is by just agreeing to vote on command in exchange for money.

By making every such conceivable transaction transparent and controlled by Law, the market is supposed to avoid these kinds of shady practices.


A trust buys shares; control of that trust is then sold on secondary markets. Or a very, very long term fulfillment contract that grants rights to the contracts current owner. Which is also sold on secondary markets.


Voting rights tied to the length of time one has held shares? That cannot fly. It certainly sounds like a great deal for founders, who would have owned their shares longer than anyone else, but is totally unworkable for outside investors. How does one value a share that, if sold, would immediately diminish in value? How is a lender to grant credit based on such collateral? Options would be massively difficult, leading to a secondary market for shell contracts in order that shares need not officially change hands.

I see massive instability. Say everyone votes on some matter on day one. If that same vote occurs later in time the results may shift, even if nobody sells any shares. So any decision taken by shareholders is time-specific. That doesn't promote long-term thinking. Rather, it promotes gamesmanship and trickery to ensure that votes happen when most advantageous to whomever is in control of the schedule.

Markets are not some invention that can be re-invented overnight. They are the result of a thousand years of contract law, codified recently but based on long-standing principals. Altering those principals to suit the desires of founders cannot happen overnight. Don't like it? Don't take the windfall. Don't go public.


> Voting rights tied to the length of time one has held shares? That cannot fly.

It also raises the question of how in the world they'd expect to prevent working around it by using something similar to the Depository Trust Company so that the actual shares don't change ownership.

Given that large markets already have mechanisms in place where nominees/trusts/proxies are used to work around other inefficiencies in the current systems, it seems a bit naive to think this wouldn't be worked around too.


Or what about something as simple as inheritance? Does passing a stock by bequest reset the voting clock? If not, then we can rig people's wills to pass ownership, creating a perverse market for the nearly-dead to sell their services in exchange for cash up front.


> How does one value a share that, if sold, would immediately diminish in value?

v2 = a * v1

> How is a lender to grant credit based on such collateral?

v2 = a^2 * v1

The first where a share is bought to be held for voting rights or long term investment and the second where a share is bought to be sold. Where "a" is the value retained.

It would be priced in like any other commission, fee or tax.

I don't think that it would sow chaos -- financial institutions and investors are pretty good at estimating value.

> Options would be massively difficult, leading to a secondary market for shell contracts in order that shares need not officially change hands.

Like derivatives? How about we just regulate those across the board.


> financial institutions and investors are pretty good at estimating value.

Except when they're really, really not.

See: mortgage tranches in 2006.


Good point. That really should be "financial institutions and investors are pretty good at calculating value". The value before and after purchase would not be obfuscated in any way. It is no more an estimate than the commission fee or tax is an estimate.


The market corrected itself which is really what markets give you.


Contract Law != Markets.

It can certainly be pushed onto the runway. Whether it flies or not depends on whether anyone wants to buy it, and that depends on whether what's behind it is worth buying. All markets do is find a price for you based on supply vs demand (with some complexity due to monetary distribution behind the scenes.)

There is nothing stopping startups coming up with their own forms of share holding (cf facebook for example). In general the ones that will be able to pull it off will be the ones everybody wants to own a piece of.

All contracts are after all is an agreement between two parties - in this case, copied and pasted from extremely hazardous shipping agreements used in 18th century when the chances of a ship coming back at all weren't that good, press gangs were being used to crew naval shipping, and the entire clearing system for the London Banks was being run by their clerks in a backroom bar in a pub on Lombard st. Times change. It took them fifty years, but eventually the bank managers noticed.


> Voting rights tied to the length of time one has held shares?

I like this philosophy. It prevents the Carl Icahn's of the world to stop breaking up companies.


Yeah -- my gut intuition is that this would be a GREAT opp for custodians of shares. (Your shell contract example basically)

You'd buy huge tranches of companies and swap out synthetic exposure to secondary investors who want just temporary directional risk in these companies. Modeling the relative value of the true shares and synthetic shares would be interesting/fun.


This already exists. It is called a Total Return Swap. It allows the purchase of the economics of a security without the actual ownership.


I used to trade them =p


Me too! Which markets?


Look at how hard and expensive it is for the average person to have individual membership of the LSE and from what i can see NSY and NSADAQ dont allow it at all.

This is favoring insiders


> Google's 2004 attempt during its IPO to distribute its shares more equitably via a "Dutch" auction led to a disappointing first day of trading and never caught on.

What's disappointing is that people see it that way, even though it worked exactly as designed. The whole point was to find a fair opening value that made a level playing field for all investors. By opening at a stable value, it did exactly that.

The experiment hasn't been repeated because the people making decisions prefer a model that gives them short-term profit, at the expense of the general public.


Does anyone else find it ironic that the guy who invented The Lean Startup philosophy is trying to take a zero to one leap to start an exchange? Wouldn't it make more sense to start a crowdfunding platform or secondary market for private shares and evolve that into a public market exchange, rather than trying to start something denovo?


Perhaps discussing feasibility with the SEC and putting out feelers via a press release is the MVP.


The articles states that he's assembled a team of 20 engineers. That doesn't sound like a MVP to me.


And sometimes, if your goal is to actually test viability, the MVP is in fact quite large.


Agreed. That's exactly our plan at Wefunder. We're using Regulation Crowdfunding and Regulation A+ to create a new secondary market for riskier ventures.

With a few minor Congressional fixes to current laws (including one being voted on soon), we expect this to be workable in 2017.

https://wefunder.com/wefunder


The idea that stock exchanges provide disincentives for long term strategic planning at public companies is not just an economic problem, but a political problem.

As an entrepreneur, I'm proud of Reese for trying to tackle a big political problem with a startup, rather than through the political process. I can't help but think a lot of big problems that interested parties try to solve with lobbying, campaigning, and legislation could instead be solved with a market-based solution that doesn't necessitate government coercion.


> The idea that stock exchanges provide disincentives for long term strategic planning at public companies

Is this really true? Quite many public companies seem to innovate in long-term. In fact, to me it feels that private companies are often more short-term, because they don't have access to the liquidity the stock market provides, and therefore they have to generate more revenues short-term.


Public company management is in need of some innovation, namely when it comes to communication between companies and stockholders. I see two avenues where technology enables evolutionary leaps:

1) Accounting: Accounting, today, is mostly the same as it was a century ago. Namely, from an engineer's perspective, it does not contain the notion of error, which is obviously essential. If you go look at, say, Coca-Cola's financial statements, you'll find a value for their brand defined to the second decimal point. I know one thing about that value: it is wrong. It should be X(+/- error at 99% confidence).

2) Governance: Communication between management and stockholders is limited to the annual meeting, complemented by the board of directors. This model is flawed, the board of directors band-aid is ineffective, and there's room for much much fine grained communication and hence better governance.

Since stock exchanges mandate over these aspects of listed organizations, there is space for innovation, hopefully attracting investors and guaranteeing the spread of the next generation of business governance.


Accounting is actually very different today than it was ten years ago. The rise of spreadsheets has made things possible that wouldn't have been when manual calculation was necessary. What is unfortunate are that estimates are required in many cases, but it is just the way it is. For example, how can you know for certain what the present value of the cost of decommissioning a nuclear power plant in fifty years? These estimates are already included in the notes of the financial statements, which in many ways are more important than the actual financial statements.

But as to your Coca-Cola example, internally generated brands are not included on the balance sheet as assets. "Coca-Cola" isn't considered an asset to the company because of how difficult it is to value it.


Just to clarify, the main reason that the "Coca-Cola" tradename is not a recognized asset is because it was generated by the Company and not purchased, not because of how difficult it is to value. I agree that accounting is very different than it was ten years ago, but I think that has more to do with SOX and the increased requirements related to financial controls. The FASB (accounting rule-making body) has tried to improve the disclosures for those items that are difficult to value, but the subjectivity of these valuations will continue to exist for the foreseeable future.


You're right. Difficult was probably the wrong word. It would open the door to too many overstatements if companies could value their own brands.


Yup, the Coca-Cola example is bad, as it was a brand never valuated in the market. However, the reasoning holds for many other assets. Think of an office tower. It will be in the balance as an asset, with a given valuation and no error margin. That's insane.


There's a simple enough reason for that: there's no confidence interval on the firm's tax obligations.

The firms specialising in asset valuations the firms use as independent justification for their accounting values are usually more than happy to provide confidence intervals or upper and lower bounds[1], and equity analysts are more than happy to note that a large portion of a company's valuation comprises assets sitting on their balance sheet that might be vulnerable to a sharp drop in valuation in a downturn. There's a sizeable haircut (essentially the lower bound of the lenders' accepted confidence interval) applied on any assets a firm tries to use as collateral too.

Just because the retail investor isn't presented with a nice little table of upper and lower bound measurements on a firm's balance sheet doesn't mean it isn't taken into account in a publicly listed firm's price. And ultimately, if a firm is more vulnerable to uncertainty about values of its assets than uncertainty about how big its future revenues might be, it as bigger issues than the clarity of its accounts.


The rise of spreadsheets (and more focused, purpose built, accounting automation) replacing manual calculation in accounting isn't a change of the last ten years.


Eric Ries has noble intentions but it seems like he overestimates the power of a trading platform to dictate (for good or bad) the companies' ethos.

>A company that wants to list its stock on Ries’s exchange will have to choose from a menu of LTSE-approved compensation plans designed to make sure executive pay is not tied to short-term stock performance.

If a company wants to buck the trend of short-term thinking, it doesn't need a new Ries exchange to do it. Jeff Bezos's Amazon is listed on NASDAQ and he continually reported 0 profits quarter after quarter. He avoided earnings manipulation for short term gains and yet, the stock price went up anyway. Likewise, if a company wants to provide a minimum wage of $70k to all employees including the janitor, they can do so while listing on NASDAQ or NYSE. The company doesn't require a hypothetical MLWSE (Minimum Living Wage Stock Exchange.)

I can't think of any example in a hundred years of corporate history where a new company can attract a significant (and profitable!) customer base based just on "aspirations". No, you must offer concrete benefits with obvious connections to the bottom line.

As an analogy, it's like proposing a new shipping company (Patriotic Shippers Inc) as an alternative FedEx/UPS. As a rule, they won't allow you to be a customer unless you pledge that anything you ship is made in the USA instead of cheap labor in China. Why would companies care about that aspiration? Either you can ship packages for half the price of FedEx, or you can ship them faster for the same price. The aspiration is just the cherry on top and not the primary motivator.

Or you propose to create a new airline hub in Iowa. You only allow airlines that provide adequate leg room and do not charge fees for checked baggage. Why would airlines move their fleet from Chicago O'Hare to Iowa based on those rules? No, the hub in the cornfield needs better enticements than that. Maybe if your Iowa hub has new patented deep learning neural nets that predict weather patterns better than the meteorologists in Chicago, and/or your scheduling algorithm for runways can handle 3x the traffic... then maybe the airlines will look at the new location. Also, if your new Iowa airport can play the politics game and convince Iowa state legislature to provide basic income to every resident and thereby cause a massive population exodus from Chicago to Des Moines, that would be another carrot to get airlines' attention.

Ries LTSE platform must offer profitable benefits such as technology advantages, or rebates to brokers, etc.


To put it even more straightforwardly, there's no economically sound reason to believe a firm which chooses to write its corporate governance rules in a certain way wouldn't perform at least as well on the NASDAQ as on a special exchange designed for the purpose.[1]

If enough funds believe that shorter term traders are undervaluing a particular NASDAQ stock because they've become so caught up in profit warnings they've missed the long term potential of its R&D, they pile in and pump the price back up again. If there aren't enough investors that believe a particular firm's long term strategy more than justifies conservative short term forecasts and a profit warning due to unanticipated increases in the research budget on NASDAQ, they won't be found on a LTSE either. It's not like the public markets are niche arenas that contrarian investors don't get involved with

[1]There's one possible non-economic reason. If existing exchanges' [but not SEC] rules prevent firms from issuing extra information pertaining to their long term research and development or restrict executive bonuses, then there is a point to doing this; afaik they don't.


This strikes me as a well-intentioned dumb idea, kind of like B-Corporations [0].

The whole point of a stock exchange is to allow the market to provide nearly instant feedback on a company's reported operational/financial performance and the decisions of its leadership. I agree that there is moral hazard in companies giving executives pay packages in which most of the upside is tied to short-term market performance. It's important to note that a large portion of the professional investor community feels the same way, and a lot of short positions are born of the observation, "looks like the CEO is just trying to fluff numbers for his bonus". This is where a strong board makes a huge difference. "Corporate governance" is not just wanker-jargon, it's a real thing.

As far as public markets limiting R&D....that's a weak argument. Five of the ten biggest companies in the world by market cap are tech companies that spend billions of dollars a year on R&D, most of which has no clear path to GAAP profitability [1].

To borrow from Churchill, liquid securities markets constitute the worst system of company ownership with the exception of all the other systems available.

[0]: https://en.wikipedia.org/wiki/Benefit_corporation

[1]: Apple, Alphabet, Microsoft, Amazon, Facebook


I agree that this is a problem, I don't think this will solve it. Of the three reforms, the first one is basically "Force your company to be organized this way" which is not a real reform, just a filter in terms of what companies will be listed on the exchange. The 2nd reform: if companies share more information on expenditures (especially on R&D) it's just going to make public money more anxious. The third reform: Maybe, but it's hardly different than how companies like Google and FB are set up to ensure their founders never lose control so why bother?


I would have thought most of the issues with publicly listing are the regulatory environment rather than the lack of a specialised listing market. Isn't this way the Nasdaq used to be?

I'm all for innovation but I can see the various levels of bureaucrats sharpening their pencils with a 'tsk tsk' noise.

Perhaps the energy could be well spent getting the wider public to accept investing and risk taking in a way that it used to. That would at least prepare the ground for tech companies to get listed again.

Maybe all the people who got burnt in 2000 have finally retired now.


The number of public US companies has fallen from 7800 in the late 1990s to 3700 in 2015. These include bankruptcies, mergers, taken private, never gone public etc. In the long term this could mean difficulties for savings plans like 401K who buy lots of equity.

In a related story, the number of shareholders per company has been plummenting too. Part of this is that money funds like ETFs only count as one shareholder, but have many owners. The other is the trend towatd just one or few private equity holders.


This may be a stupid question, but can't you sell long term value in current markets? Isn't that what Amazon has done successfully? The only thing that seems to differentiate long term vs. short term companies is how much they care culturally about their stock price day to day, and the kinds of investors they court. Is it impossible to go public with a longer term vision these days, or is it just harder?


Is this an attempt to float and liquidate the hugely funded walking dead unicorns that have no chance of going public otherwise?


It seems silly to create a new exchange when all it does is require companies to agree to specific business practices.

The list of requirements could simply be a set of rules, and a company's auditors (and CEO) could sign off that the company is in compliance. I don't see what the LTSE offers that goes beyond that.


Rather than penalizing short-term trades, why not build an exchange that only allows trading once per week, or once per month?


Once companies go public, employees “are on Yahoo Finance every day, and it’s palpable how much that is affecting the decision-making of ordinary managers,” he says.

This is believed by most everyone I know. It makes sense to me. However, is there any hard data to support this?


> is there any hard data to support this

No, so you should drop whatever you're doing and get right on that.

Oh ... so you were expecting somebody else to service you for free?


Oh ... so you were expecting somebody else to service you for free?

Maybe someone would've done that study for the PhD.

Hey, you sound touchy. I guess you're letting your biases show. I think the notion is correct, but I understand the "evidence based life." To be sincere about rigorousness, you need to check the the ideas you like as much as the ideas you don't like. But anyhow thanks for letting your biases show for free.



My favorite overheard comment about this: "...just love how minimal his MVP is. And how he's launching privately with no press coverage."

:P


> ..it could be years before the LTSE gets SEC approval...

By the time they launch, the notion of a centralised stock exchange may well be outdated.


The "stock exchange" is already decentralized [0]. It has been this way since electronic trading really took off on... i think Instinet (now NASDAQ) and Archipelago (now NYSE ARCA) in the 1990's. The National Market System [1] is a piece of legislation from 2005 that attempts to unify the markets from a customer's perspective, but it is a very leaky abstraction. That said, it is interesting to see what happens with any new exchange.

[0] https://www.sec.gov/divisions/marketreg/mrexchanges.shtml [1] https://en.m.wikipedia.org/wiki/Regulation_NMS


What would the effects be if the data reported quarterly were instead reported continually?


I just want to take a moment to appreciate the image at the top of the article.


I'd think an easier way to tame the existing stock market would lock all trades in for 90 days. It'd basically eliminate all this short term thinking.


I've long thought that an even better way would be a strong curve in the capital gains tax structure. Currently, if held ,1yr it counts as ordinary income, >1yr gets cap gains treatment of 28%.

Better would be something like the following holding periods and tax rates (obviously a mere sketch subject to tuning):

<1 minute = 95% cap gains tax rate

<1 hour = 80%

<1 day = 70%

<1 week = 60%

<1 mth = 50%

<1 qtr = 40%

<1 year = 30%

<2 yrs = 20%

<5 yrs = 10%

<10 yrs = 5%

>10yrs = 0

The short end would eliminate the volatility, unfairness and flash-crashes created by submillisecond trading. The encouragement to the longer end would get everyone to think longer-term. The 0% for decade+ holdings would prevent a lot of silliness around inheritance (e.g., you inherit a few shares from your grandfather, and have no records or reasonable way to figure the cost basis, but are required to assert one).

Of course, I doubt it would happen because it isn't in the short-term interest of the bankers.


I like your approach but a 95% tax rate is insane and would cause the market to be incredibly illiquid. Something like 50% to 0% seems a lot more appropriate.


I see why it seems nuts, but then holding a position for less than a minute seems nuts also.

That kind of trading is not primarily providing liquidity, its primarily skimming and front-running. IMO, it should probably be banned.

However, I think that providing a 95% tax rate is a lighter touch, and allows people to do it if they can find sufficient profit.

I also mentioned being open to tuning the amounts. What rate would you think would be good for such short term trading?


That would not work in aggregate. Lightning-fast quants would lurch the stock price back and forth every three months, and would require a premium to be paid for the lack of liquidity.


What would be the advantages of that?


Maybe this would be better done outside the US?

Since BTC etc, the fed seems more interested in interfering with financial disruption...


downvote must be the fed :-)

They're everywhere!




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