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The Long-Term Stock Exchange Opens for Business (ltse.com)
896 points by ummonk 10 days ago | hide | past | favorite | 535 comments





Hey everyone, Eric Ries here. Happy to answer questions if you’d like to learn more about what we are building at LTSE


Let me try to summarize everyone’s same question:

- The idea of a stock exchange that allows companies and investors to focus on 5, 10, 25 year horizons sounds great!

- However companies on normal stock exchanges now already try to do this, but it’s hard because of quarterly earnings, pressure for quarterly growth, etc

- How is LTSE different? Seems like: Companies and investors “promise” to have a longer term focus via planning

- seems like that wouldn’t be enough and the same financial pressures would result in the same focus

- We were expecting something like: “investors must hold positions for 10 years”, or, “earnings only reported every 2 years”, etc etc. but there’s nothing like that.

- So, what is the big idea, the teeth, the new rule, that makes long term focus enforceable?


I used to be part of the system that built machines that auto traded on arbitrage opportunities due to millsec/nanosec differences in reported prices in different exchanges.

Although probably not popular I would suggest that long term stocks needs to incorporate features that actively block certain trading patterns: limit price changes, limit buy/ sell frequency, & disallow shorting.

I have been heavily involved in the gamification of the stock market and the above are used to maximise immediate returns to day traders and auto-trading machines. By fixing a price for the day, then there is less incentive to 'rush' to get to the price. Also, limit how quickly someone can buy and then sell a trade, rather than milliseconds (or smaller). I would strongly urge disallowing the buying of a stock by the same person, if they'd sold in the previous week. Shorting is never a long-term game and should be banned, as it never does the company any favours.

But what I see on this LTSE is nothing of what would actually constitute long term ownership of stocks. What I actually see with this LTSE.com is the opposite of value for a stock, as it is only driving increased gamification of the metrics mentioned above.

That is, if I were an automated machine trader, I would add LTSE and their slow price changes and compare them to NYSE and make zillions.

I don't see how this encourages any kind of long term investment, nor stability for a stock.


Regarding limited trading: anyone but a retail trader could trade the forward OTC rather than this illiquid thing on the exchange. We can trade our guesses for tomorrow's price (which is really the live current price) as much as we want, and it will just wash out tomorrow.

Regarding length of ownership: so I make a fund which owns an LTSE-listed stock for a longer term, and people trade my fund instead.

Ultimately, neither of those things is much use, nor even necessary. A much stronger driver for long-termism would be to derive the dividend from the last 3 years of profits; since prices are estimates of future value and future dividend, the actual value of those would be smoothed; if any action can only make a small difference to the dividend, there is much less focus on quarterly results.

A formula or at least limits on dividends (no windfalls) would reduce the interest to activist investors who might see a pot of cash and seek to liberate it.


> That is, if I were an automated machine trader, I would add LTSE and their slow price changes and compare them to NYSE and make zillions.

Limiting trading frequency, limiting order types, and disallowing shorting would create even better opportunities for automated trading than what LTSE would provide.

> Shorting is never a long-term game and should be banned, as it never does the company any favours.

The economy benefits when market prices more accurately reflect relative value between assets. Hampering the ability of the market to lower a price that is too high never does the economy any favors. More specifically, it harms investors who buy the overpriced stock and it harms other companies raising capital who merit a higher relative price.


> & disallow shorting.

Why would you completely disallow shorting ?

I'd think that in such a framework, shorting would just need to become a longer term bet. So one could offer something like 2,5,10 year LEAPs, but restrict their trading to a window of 1 week per year (e.g. one can trade derivatives as much as one wants, but only during week X, which is the week when all derivatives expire, and all derivatives are long term).

Also for options, one would need to always require traders to be covered with the actual stock.


Not only it's a bad idea to ban shorting, but it's almost impossible to do outside regulatory action by the SEC and even then.

Shorting is essentially borrowing the control of stock to some other party. That's it. It doesn't have to be done on the market, it can be done in a private, confidential contract where I oblige myself to sell my stock when directed to do so by yourself, provided adequate warranties exist that you will cover the price difference when I want to purchase it back.

For this ceding of control, I get paid. The market only "sees" regular buying and selling of stock.


Ignoring the SEC for a moment, I don’t follow your reasoning. Why couldn’t buying shares require you to sign a contract that you’re not going to engage in various activities such as shorting? That would preempt any private arrangement you attempt to make. You of course could make an illicit secret agreement but you’d still be breaking and invalidating the contract you bought your shares under exposing yourself to various risks and penalties

How would you detect that, though?

Exercise to be left to the reader. How is collusion and conspiracy detected now?

I suppose, mostly by chance, or by technical mistakes if the perpetrators?

I believe that's the SEC's job.

Presumably by auditing all the prime brokers.

If traders have to be covered with the actual stock, would that mean they can only short Foo shares up to the amount they own? Surely that's equivalent to just selling your holdings?

Or are there people who'll loan out their stocks for 10 years, trusting the borrower has enough cash not to go bankrupt in 10 years no matter what happens?


> If traders have to be covered with the actual stock, would that mean they can only short Foo shares up to the amount they own? Surely that's equivalent to just selling your holdings?

I had selling a call option in mind.


If you own stock, you’re loaning it out to short sellers all the time. Almost any brokerage includes in its contracts the right to loan out its customer’s interest to shorts.

The short seller has an account with a brokerage, the broker is ultimately on the hook for making sure that any borrowed short interest is returned. This is why brokers have margin requirements.


Betting is contrary to investing but anyway, going along on your argument : Betting on a company failure on long term is called "Insurance". Insurance companies bet that your house will burn for example. Do you think it's viable on long term for individuals (a.k.a, lambda people) to bet ( "invest" ) this way ?

continuous trading isn't really necessary... could do a once a week or once a day crossing.

i feel like "more votes the longer you hold the stock" is also a mistake - it should be, your votes are higher weighted if you agree to a longer lockup. 10 year lockup, lots of votes. no lockup, very little...


That's an interesting idea, but in practice surely shareholder voting power has negligible influence on company management compared to share price incentives?

Maybe? But that's the whole LTSE schtick, right?

I like that voting idea a lot!

> Shorting should be banned... as it never does the company any favours.

No, here are my 5 reasons or examples why shorting is good.

_1) Shorts can be beneficial to the company:_

Tesla made a killing from being one of the most shorted stocks. As the stock price rows, it experienced frequent short squeezes as the $TSLAQ short positions holders experienced forced liquidation. Their capital became transferred from the shorts to the longs further boosting the positions of the long investors. $NKLA, $BYND, and $PTON as well.

_2) Shorts Beneficial to long investors:_

Long investors sometimes receive interest payments from short sellers. Heavily shorted stocks become Hard to Borrow (HTB) due to high short interest. HTB stocks cost money to short as represented by an annual interest payment. Robinhood traders with large blocks of HTB stock receive interest payments. IBKR traders using the stock yield enhancement program also receive interest payments. Furthermore, investors of popular Vanguard Index Funds such as VOO and VTI outperform the benchmark by a tiny amount. This is because Vanguard lends out a small portion of the heavily shorted stocks in it's index for interest payments. Then it takes those interest payments and reinvests it back into the ETF further boosting the price.

_3) Shorts allow smart investors to profit regardless of the type of market:_

Hedge funds will short overvalued stocks and long undervalued stocks so that regardless of the market direction, the hedge fund will still make a profit. This stance can reduce portfolio volatility and performance rollercoaster long-only investing can be.

Despite all of these positives for short selling, it would be interesting to see an exchange that bans short selling just for the sake of differentiation. It could never be a popular exchange due to the lack of traded options but the differentiation might be enough to allow it to succeed.


I agree. I ran a DMA/Equity algo and internal prop desk's tech at 2 major banks and you are 100% right. Any delay (artificial or real) would be what we would target for artibitrage.

Best case scenario you make wider spreads and folks somewhere get paid more to market make with higher risks...

> & disallow shorting.

That's a very bad idea.

> Shorting is never a long-term game and should be banned, as it never does the company any favours.

The purpose of shorting isn't to help the company.

If shorting wasn't allowed, Wirecard would've gone on for much longer. Short sellers are an important part of the market.


Are naked shorts still allowed? Maybe prevent those.

I'm curious re the issue of shorting and fixing about your thoughts with respect to liquidity being a good. The derivatives tend to be justified as market liquidity boosters. But if we are intentionally aiming to move out the time horizon of trades, is there then a way to distinguish those techniques as "unhealthy liquidity"?

This reminds me of an article on HN from earlier this year by a reviewer of grant proposals, about how often they receive applications that clearly describe the problem the applicant wants to solve, but don't describe an idea with which to solve it: https://billwadge.wordpress.com/2020/02/10/im-good-enough-im...

> The idea of a stock exchange that allows companies and investors to focus on 5, 10, 25 year horizons sounds great!

But this already exists. It's just the regular stock exchange.

It's also worth noting that a majority of the capital in the market is already focused on very long term horizons. Most of it is sitting in boring mutual funds, who's investors are looking towards retirement as their horizon.

If you're looking for a market that is so focused on long term horizons that they don't even care whether you have enough revenue to remain solvent, and won't have enough revenue to remain solvent at any time in the foreseeable future, then that market already exists too. You can call it Private Equity, or Venture Capital, and HN often likes to discuss how it's trying to reinvent the 2000s tech bubble. It's also led to some incredible scams, and isn't really something you want consumer investors betting their retirements on.

> something like: “investors must hold positions for 10 years”, or, “earnings only reported every 2 years”

These wouldn't be good rules even if you were focused exclusively on long term results. Your longterm outlook can change from one day to the next.


If you want long term focus, invest in an index. No single company can weather every storm. Sometimes they need short term focus to survive in the long term.

I think the idea is that a lot of the perceived instability in the economy is _caused_ or at least much amplified by the nature of stock markets. Changing how one thinks about stocks and what the ideal of a "healthy" company looks like might alleviate some of these problems.

> a lot of the perceived instability in the economy is _caused_ or at least much amplified by the nature of stock markets.

Where did you get this idea? I don't see anyone saying it. Consider what might happen if you freeze the ability for people to borrow money. The stock market allows capital to move around more freely.

I notice this is your first comment in a year and a half. Welcome back.


'- How is LTSE different? Seems like: Companies and investors “promise” to have a longer term focus via planning'

I don't think "promise" is the word. The fact the exchange says it's focused on long term, would incline companies that wanted to focus on long term to list themselves there. Likewise, it would incline customers to list themselves there. But what incentive is there for short term traders?

Right now, on the normal exchanges, you have both types. And the loudest voices in the room are the short term types. They're the ones paying the closest attention, attending the shareholder meetings, etc. The long term holders are far less engaged.

What does this have for those short term traders? Nothing. There's no reason to pile into this when all the incentives of the companies listing, and existing holders, are aligned to long term. If you're looking short term, why would you want this, knowing all the other players will be aligned to take hits in the short term, if it pays off long term?

Not saying that this will be successful, but I can see it working because of that. Not because it's more attractive to long term holders, but because it's less attractive to short term.

That said, agreed that some ways to enforce it would be nice. But those have some noticeable downsides too (i.e., if a company makes decisions you don't agree with, but you're locked into a hold position...).

That said, as was mentioned elsewhere, it sounds like voting power is tied to how long you've held, as well as number of shares. So that certainly helps silent the churn and burn voices.


all the incentives of the companies listing, and existing holders, are aligned to long term

Are they? In what way?

The only difference from a normal exchange appears to be that companies are "required to publish a series of policies". Why wouldn't that incentivize saying "the right things" in those policies but then otherwise behaving exactly the same as companies listed on a normal exchange?

it sounds like voting power is tied to how long you've held

This is not actually a requirement for companies listed on the LTSE, but even if every company implemented it, in practice surely shareholder voting power has negligible influence on company management compared to share price incentives?


"This stock exchange is intended for long term"

I am a business that wishes to focus on the short term; why would I list there?

I am a customer that wishes to focus on the short term; why would I buy there?

It's not a requirement. It likely doesn't need to be a requirement. The point is, investors and companies both have options; why would they pick the one that is misaligned with them, even if it's just in intention? Starting out there's no reason to (no critical mass to make it worth investing in), and if it picks up traction there'd be no reason to either, because now the incumbent companies, and their stockholders, are already aligned to long term thinking due to their being the only ones inclined to invest initially.


just want to float an idea that occurred to me that might explain the disappointment/confusion from HN:

the LTSE in its current form is a Minimal Viable Product.

It is maximally compatible with existing exchanges in order to encourage trading, listing and adoption from day 1. Eric picked the governance angle to start with, but it's probably not the final vision. He believes it is high leverage; reasonable people might disagree.

but it is perfectly explainable to have v1 of the LTSE be a little disappointing, given that this is the same guy that coined the MVP.


Congratulations.

"We shape our buildings; thereafter they shape us." -- Winston Churchill

Though I barely understand such things, I'm very excited by your LTSE and Katsuyama's Investors Exchange (IEX).

Listening to your interviews about LTSE, my takeaway is that your goal is to allow companies to be judged on their own merits, instead of someone else's.

So one side effect may be to help migrate private equity funded companies back into the light. Terrific, right?

I hope others see that our markets are designed. They are human artifacts. They are not natural laws to be accepted as-is. That we can shape and nurture markets as we see fit. That the rules matter.

You and Katsuyama identified opportunities for improvement and engineered solutions. You're meta-geeks. Like programmers who make programming languages, so that others might benefit.

Happy hunting.


I concur! Market design is so important.

Eric, I worked at the world's first carbon market over a decade ago (Chicago Climate Exchange) and a group of us are at the early stages of designing some new exchanges focused on fixing market failures across several sectors.

I've been following your work for a long time, and I am excited to see LTSE finally launch.

I am concerned about the ability for people to create secondary markets the undermine the intention of the LTSE. How do you resolve this?


If the reforms are embodied in the company's charter, they will follow the shares wherever they are traded

sorry if this is an ignorant question - but what about activist investors and hostile takeovers? shareholder voting rights are still a thing, aren't they?

I do think there is such a thing as good activism, when investors use their own long-term position in a company to insist on changes and accountability which they plan to benefit from over time. And I also think there is bad activism, which has a different tenor and character.

Good governance means, in part, shifting the power structures of the corporation to make it easier to do the good and harder to do the bad kinds of activism.


Can you explain what this means?

I'll try: The charter governs the relationship of the company to its investor. A share of stock is a contract between those parties. The charter controls what the stock "means" no matter where it trades.

If I've understood the intent correctly, the individual investor side of LTSE is only a small part of the picture. The biggest part is that the company itself is setup for long-term focus via its principles[0] -- as one example, compensating executives not based solely on hitting a single quarter's numbers, but on performance over the long term.

So long as a company adheres to those principles, it doesn't matter if an individual investor can obtain their shares via ShortTermScumbags.com or the like. Having investors who are along for the long haul is a nice-to-have, not a must-have, since the goal is long-term focused companies which will naturally, via its principles, eschew reacting to short-term trends in share price.

[0] https://longtermstockexchange.com/listings/principles/


> I hope others see that our markets are designed. They are human artifacts. They are not natural laws to be accepted as-is.

“Markets” are not the same thing as “the market”. Markets are human artifacts; the market is an emergent behavior. It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics.

If the behavior of your markets fails to match the reality of the market, the best you can hope for is to only introduce a small amount of inefficiency. Of course, utopians who ignore the real nature of the market usually find themselves lethally encumbered by deadweight loss.

> your goal is to allow companies to be judged on their own merits, instead of someone else's.

What is this supposed to mean? Why would a company’s subjective evaluation of themselves be a better basis for market valuation than the evaluation of the people who actually buy and sell interest in that company?


The way you've put this bears more resemblance to religion than anything else.

"Markets" are real things. I can walk to them, or navigate to their website, or call them up.

You are claiming that there is an invisible, metaphysical "the market", which exists in the Platonic world of forms, that governs the behavior of these genuine markets.

This is like reading "The Gods of the Copybook Headings", and founding a religion which worships and offers sacrifice to those gods!

This "the market" you refer to is an abstraction of the behavior of real markets. It can give us all sorts of guidance as to what will happen when various rules are applied, or not, to these real markets; but comparing these broad heuristic rules to thermodynamics has me suspecting you don't understand either thermodynamics nor macroeconomics.

Every market has rules. Invariably, you are not allowed to stab a vendor and take their stuff. Sometimes there are things you can't sell; sometimes only Dutch auction is allowed, and so on ad infinitum.

This is simply a market with different rules from those governing other stock markets. We're all free to speculate on the consequences those different rules will have; perhaps they will summon literal Gods of the Copybook Headings, which will return upon us with actual terror and slaughter.

The safe bet is that prediction and reality will be divergent. This is economics, not thermodynamics, after all.


> The way you've put this bears more resemblance to religion than anything else.

The connection with religion goes deeper that it seems.

Mission, vision / visionary, iconic (product), (job) creator, charismatic, angel (investors).

All these words had a purely religious meaning 200 years ago.

This is not just natural evolution of the language. Other fields don't have this amount of religious words at all.


>We're all free to speculate on the consequences those different rules will have

To echo what my sibling commenter said, those consequences are what the grandparent comment is referring to as the emergent market - because it's not possible to control or accurately predict the behavior of every single actor.

It was a rebuttal to a statement saying we don't need to consider markets as pure forces of nature, because how we set them up can affect the outcome. I think everyone in this conversation agrees that it's both true that the design of a market affects how people act in it, as well as it being impossible to predict or control perfectly. The question is to what extent it actually is possible.


On the contrary, he/she is claiming that "the market" is an emergent behaviour of the dynamics of a system. We set up "market" and instigate rules. "The market" is what happens subsequently.

If you think emergent behaviors are "invisible" and "metaphysical", this suggests a modeling deficiency on your part rather than anything interesting about the real world.

> This "the market" you refer to is an abstraction of the behavior of real markets

The market isn't an abstraction at all - it's a handle for the emergent behavior of the sum total of all economic activity.


"The market" hardly exists in a bubble entirely outside of human sentiment and human institutions.

Human institutions; the prevailing ways that capital moves; legal institutions; customary behaviors, mores, etc, all have a profound impact on not just markets but also The Market (tm). The edifices we create are important.


> Markets are human artifacts; the market is an emergent behavior.

If "the market" is a 2d array of 1 and 0 that emerges from a cellular automata, then "markets" are the rules for that automata. The human artifact defines the rules and incentives that cause the emergent behavior seen by aggregating all market participants.

There is no Platonic ideal "markets" independent of the human structures where they operate any more than you can define how fast a pendulum swings without specifying its length.


"Markets" (locations or brokers designated for trade) represent a very small fraction of all human economic activity. Conflating the rules of NYSE with the rules of the market is a mistake.

> There is no Platonic ideal "markets" independent of the human structures

You need to understand that there absolutely is a single "the market" and it's not platonic at all. It refers to the sum behavior of all human economic interaction, which is absolutely a physical reality.


"Why would a company’s subjective evaluation of themselves be a better basis for ..."

Eric Ries gives some pretty good examples. One is to effectively decouple HFT trading from long term value investing:

https://www.acquired.fm/episodes/season-5-episode-10-the-lea...


> It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics.

It's funny you make this comparison. Because so many of these supposed laws about "the market" violate an effective equivalent to the second law of thermodynamics for information systems: P=/=NP. The claims often made about the transcendent nature of the laws governing "the market" violate the computational properties of reality as we understand it [1]. If "the market" behaved as so many claim then we would have proof of P=NP.

Evolution is also an emergent behavior, of biochemical systems. But we also understand how it functions as an algorithm. So much so we now use it to aid in the design the wing shapes of our planes, the design of new high efficiency radios, and to find new algorithms.

The entire universe is governed by laws beyond our control. That doesn't prevent us from understanding them and bending them to our will. As we have done with ropes and levers, atoms and proteins, so too can we understand and engineer markets.

As it happens markets are likely in a similar class of algorithm as evolution: efficient approximations of NP problems. This is why people use markets as the basis of things like prediction markets, scheduling algorithms, and bin packing.

"The market" is a claim to the "god is in the gaps" no different than intelligent design is. It even does the whole song and dance of elevating an approximation algorithm to some unknowable divine will. An approximation algorithm we already understand and use in engineering everyday.

[1] Make no mistake, bits of information are physically connected to reality, a non-trivial NP algorithm running on human timescales would boil the oceans. See: https://en.wikipedia.org/wiki/Landauer%27s_principle


This isn't known to be true. In terms of computational complexity, market clearing is PPAD (https://en.wikipedia.org/wiki/PPAD_(complexity)). It may turn out that PPAD is computationally tractable even if P != NP, though it is thought to be unlikely.

I would argue that reinforces my point rather than weaken it. My point being that the market is an understandable thing becomes more reasonable if it turns out it's not even an intractable problem that we are discussing.

But I also think you are misunderstanding the argument I was replying to in the first place, because a lot of the claims about "the market" are about the second order allocation of resources that markets cause and not (just) the clearing of them. For example market clearing is how we arrive at the price given the buy and sell orders, but the original goal was the efficient allocation of resources. For which markets are obviously not a perfect solution (it's relatively easy to create order books which end up with unfulfilled orders despite money/weight being available to argue for that allocation), even if they are a good approximate solution (via market clearing). The claims about "the market" are market fundamentalism, that the market is the ideal allocation structure, that we can't find a better or even equivalent solution, because that's just how good markets are. That was what I was rejecting. Not market clearing.


> The claims about "the market" are market fundamentalism, that the market is the ideal allocation structure, that we can't find a better or even equivalent solution, because that's just how good markets are.

It's more usual to accept a weaker claim: that markets are the most efficient approximation to the perfect algorithm for price discovery, that is, they are the best way we know of to approximate perfect pricing given the constraint of time.

Insisting that no better approach is possible is a strong claim; you'll find it in the wild, but it's always dicey to make confident predictions about the future of human ingenuity.

But at the same time, there's no reason to waste much breath on technology which doesn't exist: markets are what we have, and they're what we should use, with the burden of proof firmly on the inventor of anything new to demonstrate that it has greater efficiency.


> It's more usual to accept a weaker claim: that markets are the most efficient approximation to the perfect algorithm for price discovery

This claim is just as problematic. You may view it as weaker, but algorithmicly speaking it's the same nonsense. Algorithms in similar complexity classes are usually translatable to each other, which is to say they can be framed in terms of each other. You appear to be claiming that markets are the most efficient variant of an algorithmic class. Which is, again, nonsense. It might have some very nice qualities compared to other algorithms within it's class, but to claim it's the most efficient is, again, problematic.

A claim like that would require proof, not just the absence of contradicting evidence.

> Insisting that no better approach is possible is a strong claim; you'll find it in the wild

Ok, but I do believe the poster I was originally disagreeing with is arguing that:

> the market is an emergent behavior. It’s governed by laws beyond our control as surely as the behavior of materials are governed by thermodynamics.

> If the behavior of your markets fails to match the reality of the market, the best you can hope for is to only introduce a small amount of inefficiency. Of course, utopians who ignore the real nature of the market usually find themselves lethally encumbered by deadweight loss

This appears to be a strong claim that nothing can be more efficient than "the market" without introducing inefficiency or "lethal[.]" dead-weight loss.

> markets are what we have, and they're what we should use, with the burden of proof firmly on the inventor of anything new to demonstrate that it has greater efficiency.

This is a fallacious argument against my point.

To begin with, a new algorithm in the same class as markets is likely to have the same or similar efficiency. And it will be the other properties of it that are more interesting.

But the real issue is that the double standard people argue with the efficient market hypothesis (and especially the economic calculation problem) is problematic because it misunderstands computation. You simultaneously claim (in this post) to have the best approximation due to a lack of contradicting evidence, but then also want alternatives to provide proof of beating that physically impossible standard.

My main response though is: just because markets are the best thing we have does not mean we should accept absurd claims about them. Just because solar energy is effectively unlimited, does not make it a perpetual motion machine.


> This claim is just as problematic. You may view it as weaker, but algorithmicly speaking it's the same nonsense.

It's an existential claim, not a mathematical claim.

The claim is simply that markets are more efficient than other mechanisms, proposed or extant, which actually exist in the real world.

Clearly to quantify this claim requires some real mathematical analysis, but that's quite beyond my talents or interest. I'm just here to point out that the weakened claim is "markets are the best we've got", not anything theoretical nor abstract.

And I'd suggest reading my reply to the absurd thermodynamics bit before assuming too much about my thoughts on it!


> And I'd suggest reading my reply to the absurd thermodynamics bit before assuming too much about my thoughts on it!

I mean. My issue is multi-fold. I have an issue with market fundamentalists who treat it like a religion. But I also have an issue with economists who use methods of analysis that aren't empirical.

> It's an existential claim, not a mathematical claim.

This isn't just an issue of philosophy and mathematics in the abstract. Computation is a physical phenomena. The claim of efficiency being made here, even in the weaker version, is not congruent with reality.

It's an existential claim that would be no different than chemists shouting "this chemical reaction will continue forever" (a violation of the second law of thermodynamics).

> I'm just here to point out that the weakened claim is "markets are the best we've got", not anything theoretical nor abstract.

The weaker claim is no different than doctors who once believed in the four humors. It's not technically an incorrect categorization of reality given current knowledge in the field. But it's a piece of general economics knowledge that has no backing in reality, nor is falsifiable, nor provides predictive use.

And every time an economist spouts that sort of nonsense I can't help but remember their field must be primarily pesduo-science. I don't know how they expect me to take them seriously when they are still yelling about four humors and perpetual chemical interactions.

Because existential claims like this one are incongruent with reality. I don't know many times I can emphasize this point, the claim, even the weakest version I have seen, is not physically possible, hence it would require extraordinary evidence. It would upset the entire field of computation if it were true. It stands in opposition to modern pillars of computational reality, no different than claiming one had a perpetual motion machine would physics. Humanity would be like gods if it were true. You can continue to claim it all you want, but it's as misguided as claiming the earth is flat.


There is one prime difference between computation and economics - and for that matter, material and social sciences. Computation doesn't study humans.

Wouldn't a "unified theory" of economics (a deterministic one at that) effectively rule out free will? After all, what is "the market" if not the aggregate behaviour of all human actors in it? And if you accept free will, doesn't that conversely create a problem where the best you can do when predicting markets is correlation, not causality?


>an effective equivalent to the second law of thermodynamics for information systems: P=/=NP.

This is not true. For example, the second law is only a statistical claim - the larger the system, the more likely it holds. But the second law is not a law against entropy ever going the other way. It's entirely possible, but not likely that another universe pops out of a quantum fluctuation at any moment. See the concept of a Boltzmann Brain for where physicists think this leads.

And P != NP is not a law at all - it's a guess, since no one knows if it's true. Complexity classes certainly changed with the introduction of quantum computer, allowing (very) few problems with known exponential classical Turing time to be done in polynomial quantum Turing time. It is also known that if closed timelike loops are allowed in computation then P=NP, but it's not known if we can engineer such physical items.

>The claims often made about the transcendent nature of the laws governing "the market" violate the computational properties of reality as we understand it

As evidence of the falsity of the above claims, TQFTs routinely compute NP hard problems, which is why for some time Friedman has tried to leverage them to solve NP hard computational problems.

Here's [1] but one paper showing this to be true. "Non-Abelian topological quantum field theories exhibit the mathematical features necessary to support a model capable of solving all ⧣P problems, a computationally intractable class, in polynomial time. "

Roughly, TQFTs perform certain "computations" on knots in polynomial time that are known to be NP hard in classical or current quantum computing models.

[2] is another nice take in Annals of Mathematics, the most prestigious journal in math.

Thus reality routinely solves NP hard problems. Thus your claims are not true.

[1] https://www.pnas.org/content/95/1/98 [2] https://annals.math.princeton.edu/wp-content/uploads/annals-...


Thanks for the kind words

Eric, I saw you present at Twiistup years ago with that CEO guy from Demand Media, where you exclaimed that you crammed untested spyware toolbars into IMVU just to get money, knowing it would blow up your users' computers. It's clear you got some money since then, but other than that why would we trust you with a stock exchange in retrospect? Were you hoping we would forget?

There are not enough upvotes for this comment.

Eric, I see you've commented hours after my question was posted, but neglected to answer? You openly admitted to infecting IMVU users' computers with malicious toolbars on purpose to make quick, easy money at Twiistup in a speech on startups, and now you are asking us to buy stocks on your exchange? You're not even mentioning that SEC REGSHO applies to ANY US stock exchange, so all the brokers have to do is let certain clients borrow and that's the end of the "long term" regardless of your marketing of this. I guess you were a notch better than your Twiistup co-presenter Robert Scoble?: https://www.google.com/search?q=robert+scoble+harassment So reply Eric, tell us why you have become so trustworthy? Is it that you cajoled people into getting you truckloads of cash? Of course it is.

YASE - Yet Another Stock Exchange "This time I, Yes I, collect the listing fees! Yippee" - IMVU senior spyware deployer

I fixed the marketing for you Eric. It's less abstract now. Almost like your startup speech at Skirball. https://victorcaballero.com/twiistup-7-agenda/


Did you switch from r/wallstreetbets to selling gold miners their shovels? A very successful approach.

Just don't get divorced.

The "shovel guy": https://en.wikipedia.org/wiki/Samuel_Brannan

> Brannan's wife divorced him and he was forced to liquidate much of his real estate to pay her one-half of their assets. He died poor and in relative obscurity


Better still - don't get married. It's just a piece of paper that says somebody else can take half your stuff.

Modelling marriage as an unhedged call option, interesting.

Not necessarily. The option could go either way - you might be the wealthier party but it could also be that your spouse is the wealthier one. You could also have a prenup, but that would still involve lawyers.

I just don't see the benefit to the standard government marriage scheme. Domestic partner benefits have basically the same upside and very little downside these days. From a legal perspective marriage is almost entirely about property/money. There are plenty of people who have a loving and marriage-like relationship without getting the state's permission (piece of paper).


Why downvote if you won't correct me?

Now this is downvoted? Looks like someone's irrational and taking an unfounded emotional stance on the legal issue of marriage.

The blog post doesn’t explain what, if anything, is different about how the market works.

From the name, I expected that it would require holding an investment for a minimum period. But I see no evidence of that elsewhere on the site. I do see listing requirements that supposedly require companies to have a long term focus. But then elsewhere I see that all securities in the S&P 500 and the RUSSEL 2000 index will be included.

So I’m very confused? What even is this thing? Did I miss a concise explanation somewhere?


IMO, the main difference between LTSE and a traditional stock exchange is the way votes are allocated to shareholders. Traditionally voting power is proportional to shares owned. However, on LTSE the amount of time a stock has been held is also considered.

There is no minimum holding period, but there is an incentive to hold.

A bit of a tangent: Since there is a premium in voting rights (GOOG vs GOOGL), I'm curious to see how this new voting structure might result in strange behavior by traders and investors. For example, will people use single stock futures to hedge while retaining their voting rights? Will special purpose vehicles for holding shares be created?


< Traditionally voting power is proportional to shares owned. However, on LTSE the amount of time a stock has been held is also considered.

This seems problematic. The longer you hold your stock the more voting rights and hence value it accrues. But if you sell the shares all the accrued value is lost. So it surely leads to proxy voting, where former owners still are registered as owners of their former shares, but vote them for whoever they secretly sold the shares to.


I might be naive, but are you not going to get caught doing this? Because if you're secretly selling enough shares that your voting rights will have an actual impact, it seems like that'll be a fair amount of money you'd also need to transfer secretly, which is not that easy.

No, controls would be trivial to evade.

Let’s say I have a billion dollars worth of Tesla stock that I’ve owned for a decade, giving me twice as much votes as normal. You want to increase your voting power, and are willing to pay $1.5B for my shares to do so.

We sign a loan agreement. You loan me $1.5B at a high interest rate, secured by my shares and my agreement to vote them as per your instructions. If you demand repayment I can pay off the loan in full simply by surrendering my shares to you, and all interest is forgiven. If I want to repay the loan, I have to pay the full balance, all interest and a prepayment penalty in cash, no stock accepted.

You don’t want me to repay the loan so the shares can retain their ownership premium, and so I can’t without paying a massive penalty + interest. You can never require me to repay the $1.5B, I can simply surrender the shares, so I can spend it immediately any way I want.

So we can keep this “loan“ going for decades more, or until you want to sell these shares. Presumably you will sign a similar “loan” agreement with your buyer to maintain the voting power the share accumulated.


I was with you until the end - how does transferability function with this kind of loan arrangement?

On its face it’s clearly harder, just because now you need three parties to sign a new loan agreement. It could be made much easier if the loan is assignable under same terms, especially if parts of the loan are assignable for proportionate parts of the shares.

And if the benefits are significant, I would bet this creates a whole tertiary layer of brokers, bankers and lawyers enabling these kind of transactions with standardized loan agreements and clearing houses.


The loss of accrued value is a disincentive to sell, and sell-disincentives are a feature, not a big.

Illiquidity is never a feature, it always reduces market value.

That changed voting structure sounds interesting. I could not find any reference to this on the website. Where should I look for more info?

Also, would this apply only to securities actually listed on LTSE or also, somehow, to non-LTSE listed securities bought on LTSE (which apparently is the only thing possible to do so far(.


The SEC supported the validity of LTSEs Voting Rights Policy [0]. Eric Reis has clarified time-phase voting won't be mandatory [1], however the LTSE is facilitating technological / legal support for the implementation of such voting structures without directly endorsing them (presumably for legal reasons) [2].

>Also, would this apply only to securities actually listed on LTSE or also, somehow, to non-LTSE listed securities bought on LTSE (which apparently is the only thing possible to do so far(.

Their rulebook disallows unfair dilution of other classes of shares.

[0] https://www.sec.gov/rules/other/2019/34-85828.pdf

>the Council of Institutional Investors (“CII”) advised that it could not support LTSE’s Form 1 application for two reasons. First, CII stated that the corporate governance requirements in LTSE’s Form 1 application (specifically, its “Voting Rights Policy”176) would “permit newly public companies to have multi-class structures with unequal voting rights in conflict with [CII’s] membership approved policies supporting a one share, one vote structure” with “no sunsets on such structures.”177 Second, CII stated that LTSE’s Form 1 application “does not include any information about LTSE’s reported plans to update its application to include time-phased voting rights as a core element of its proposed corporate governance listing standards.”178 In addition, CII set forth its concerns about time-phased voting rights, including disproportionate empowerment of long-term stakeholders and challenges in tracking ownership of those with super-voting rights.

>The issues raised in the CII Letter do not provide a basis for the Commission to reject LTSE’s Form 1 application. Commission rules do not mandate that the rules of a national securities exchange must provide for a “one share, one vote” requirement for listed issuers.

[1] https://qz.com/1901336/eric-ries-long-term-stock-exchange-ai...

[2] https://ltse.com/faq/

> No. The exchange’s rules do not take a position on enhanced voting rights for shareholders. Our software affiliate, LTSE Services, has designed a tool to facilitate enhanced voting, should a company choose on its own to implement that.


From the linked article and FAQ, it sounds like this was once meant to be a differentiator, but the Voting Rights Policy mentioned in that SEC document is no longer a rule of the exchange, and tenured voting rights are not a listing requirement. Also not clear if other exchanges would disallow such voting rights.

Besides the complications this would raise that you mentioned, I also wonder how companies would even track tenure of ownership, since many (most?) shares of stock are not directly held and so the company may not even know who the nominal shareholder is or when transfers take place.


Hmm, I even skimmed the rule filings and I can’t find any reference to this. Are you sure this is a rule they have in place?


I wonder what the actual business model for the company is and how the incentives from this will affect the LTSE vision behind "long-term investing". As far as I have seen on the website the company runs various freemium SaaS products like captable.io, startuprunway.io and hiringplan.io. They obviously want or need to monetize on that.

edit links: - https://captable.io - https://startuprunway.io - https://hiringplan.io - https://fast409a.io - https://startupdisclosure.io - https://notegenie.io


I spoke to a recruiter for LTSE a year ago and they were hiring lots of engineers to compete with Carta.

I was a bit disappointed with the pitch; sure Carta is useful but I had hoped LTSE was a place to do some really revolutionary stuff. It seems like that aspect of the company is a ways off and from my limited understanding, it doesn’t seem like today’s announcement makes it tangibly different than NYSE.

I’m neither a banker nor a major investor so I’m really curious to understand how they see this as a paradigm shift. For now it looks like a stock exchange started by someone I really admire but not much else.


Companies built to last are built that way from the start. The culture and contracts baked into the companies follow them for life. That's why we build software for ourselves and our fellow founders. I wrote more about this here: https://shan.io/writing/ltse-launch-americas-newest-stock-ex...

yuuuup

it feels like the third page in the godaddy checkout flow where it's like 'maybe you need our wordpress, email, and VPS hosting in order to launch your website'

also feels like a data grab. traditional exchanges don't collect this stuff, and the SEC doesn't collect most of it.


Seems really cool, but after being on your site for 10 min I have yet to find the "meat". Other than a vague reference to "through member broker-dealers". For me the info I am interested in, and would want to see featured most prominently, is 1) A list of companies on the exchange and their last closing price. 2) An option (even if through a third party) to purchase shares of companies listed on LTSE. This information is no where to be found.

Today's announcement doesn't pertain to listings, so 1) is a ways off still

You can do 2) through your existing broker, so long as they are a member of the LTSE, which they likely already are. You can check their membership status here: https://brokercheck.finra.org/


How can I do 2) if I don't even have a list of who is listed that I might want to buy? I don't even need closing prices at the very moment, I can't even find a single member of LTSE after spending 5 minutes on your site...

The goal seems laudable but this feels like a mess to me if it is actually "open for business". Neither of my two big bank brokers support it and even if they did, I again have no idea what I would be investing in.

To me, the wildest thing is that in order to find out of I could even invest, I had to find out via a bad UX of reading a hacker news comment, going to a different website, being confused by that website's UX, having to read more comments, clicking into a tiny link that leads to a long PDF and scrolling to a specific page, and then repeating for all my broker options. Why not just list the major people who serve LTSE on your website clearly along with the tickers/companies?


I honestly cannot figure out how to use this site to see if my broker, or any broker for that matter, is a member of LTSE. Would you be able to provide an example?

Sure. Here's Citadel's profile from FINRA: https://files.brokercheck.finra.org/firm/firm_116797.pdf

Scroll down to page 9, you'll see they are a member of The Long-Term Stock Exchange


Citadel securities are famous for their long-term investment horizons.

100 milliseconds is practically an eternity


For an android!

Is there a path for investors from outside the US?

I am a broker and software engineer and am just now hearing of the LTSE. Is there a test or way to register through FINRA? Would be interested in taking part in this in both capacities.

Trading has to happen via a broker that is a member of the exchange (as is true for every other exchange). If you are part of a firm that would like to become a member, the information is here: https://longtermstockexchange.com/market/connectivity/

I have a question: what exactly is different? Wasn't clear in the blog post.

Do you prevent day-trading or something similar?


We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

I know that doesn’t sound super sexy but we believe this is a high-leverage point for reforms

We will have more to say on reforms that relate to reading in the future, but we don’t limit the ability of “tourists” to trade in and out of stocks as normal.


What does that mean concretely? Will earnings reports still be quarterly? I guess I'm trying to figure out why the exchange has to do anything here. There's plenty of investors and companies that think long term with BRK and its investors being the most prominent.

Digging a bit more, on the investor side, there are value investors who look for solid, if unspectacular businesses at a price point and buy and hold over long periods of time.

On the company side, there are exceptional founder run businesses like Amazon, FB etc. that don't care very much what things look like in the short term (Bezos claims he's willing to be misunderstood for long periods of time for example).


> What does that mean concretely?

I noticed there doesn't appear to be tangible answers to this anywhere (including in the reply you got to your comment). Curious to pitch a supposed long-term stock exchange without anything meaningful to lure listings to it other than vapor statements.

I'd bet it's because they can't set any strict upfront requirements. They won't be able to get the listings they need if they do it, the interest won't be there. So most of what they're going to try to do is espouse the mission goals, hoping over time they can gradually implement those controls.


I see this criticism a lot in the various threads, but I don't really understand it. As a stock exchange, we are strictly regulated. We aren't allowed to make vague claims that are not backed up by regulatory filings, all of which are publicly available both on our website and at the SEC. For example (from least to most detailed):

https://longtermstockexchange.com/listings https://www.sec.gov/rules/sro/ltse.htm https://longtermstockexchange.com/static/principals_for_lt_s... https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf https://www.sec.gov/rules/other/2018/long-term-stock-exchang...


Agreed. Just like everything else, the ideas hold more power based on who they are coming from. Eric is a stellar individual with a trail of success behind him - and I'm not taking anything away from him with this comment, but if I were to go to a set of worthy investors and corporations pitching this idea - I'd be laughed out of the room as naive.

I don't know if this is as true as you think. First of all, I've been laughed out of a lot of rooms for pitching this idea. Hundreds, by now.

Further, although many VC's are indeed herd animals as you seem to suggest, there are a few bold ones who genuinely hunt for new and radical ideas and would be willing to back a first-time founder - if you're willing to do the work.


Thanks for the response Eric. My point is about the audacity of the idea. Specifically, to open a new financial market place of the magnitude it would take to be viable, one would need - 1. significant experience in the space to understand the nuances, what's working, what's broken, etc. 2. Sizable investments and talent for operations (scale, uptime, compliance, etc.), 3. A well thought through G2M strategy (including derivatives, indices, options, day trading, HFT, etc.), 4. A broker network, 5. A true, unambiguous differentiator that is viable, measurable, enforceable, and timely.

I'm not sure I had any of those 5 things when I began this journey, tbh

I’m not quite sure how to answer your question. Clearly there are long-term investors and companies in today’s markets. I think there would be more of them if they had a platform conducive to their philosophy.

>Clearly there are long-term investors and companies in today’s markets.

That's not really an answer to the question - so how do you define long-term, and how do you take reports? Are they still quarterly reports? Or are the reports longer-term? How do companies prove they're long-term to interact with your platform?

You haven't really talked about the concrete definitions or parameters around 'long-term' in this thread. Please do, it would be nice.


Quarterly reporting is an SEC requirement, so we don't affect that. We do require certain additional reports be filed on an annual basis.

Companies prove their long term by adopting policies responsible to our long-term principles. The way this works is spelled out in a lot of detail both on our website and in our regulatory filings. Here's more of a layman's overview: https://longtermstockexchange.com/static/principals_for_lt_s...


Thank you. Have you discussed possible perverse outcomes to (D) and (E)? If so, what negative outcomes have you been able to foresee?

It seems that perhaps you have some idea of what these perverse outcomes look like. D) seems to be "a company reinvests in its employees (training, etc) and E) is someethign like "a Company rewards employees and stakeholders for long-term company success."

What does the perverse scenario look like for you?


I legitimately don't have any in mind. I just have zero faith in humanity, and assume loopholes will be exploited to follow the letter of the law, but not the intent. I was wondering if they've thought about that and what his thoughts were about it.

Edit; The only one I can think of, when it comes to rewarding employees is what if a company uses contractors (or gig workers if you use those words), and therefore not defined as employees?


You don't even need to say it like that: you have zero faith in humanity. You should have some faith, we've performed reasonably okay over time. The problem is thus: over a long enough time period, given any individual's inert desire to benefit from something, it will be attempted if not by one individual, then by another. Wanting to define, in law, through enforcement, terms of ethical conduct and its breach is reasonable and necessary herein where capital is involved.

I'd like to see a market for solely worker-owned cooperatives, in which stock dissolves over a fixed time-period, 5 years(restaurant)-500 years(asteroid mining). "Dissolve" being essentially buybacks that occur, bending based on performance. Then again, I'd like to see capital dissolving, normalizing, over 100 years, giving capital the property of entropy, redistributing it all, but very slowly over the span of a bit more than a human lifetime. This capital would be more valuable than any world currency.


In the SEC filing they say that companies will be required to issue long term policy documents and that their progress should be measured in Years or Decades and with long term compensation plans. The compensation piece seems like the most concrete requirement given that most companies will say they have long term plans. But those companies also reward executives based on stock price and earnings in a quarterly/yearly intervals, not decades.

We don't allow companies to list if all they have are vague plans. Each policy requires companies to make structural, externally-verifiable commitments.

Sounds Great! Thanks for Lean Startup it helped save me from spending years developing a product without a market.

> Clearly there are long-term investors and companies in today’s markets.

As the age-old principle goes: could you please name three?

Examples would help us understand the idea more thoroughly.


Institutional investors like pension funds have a longer term focus. If this platform succeeds, it might encourage more institutions like it.

Given that companies like Uber, which are not only unprofitable but don't even have a clear path to profitability at any time horizon, trade at fairly high valuations, what's the basis for the belief that investors are irrationally focused on short-term results? Should Uber actually trade at higher valuations than it does today? Why isn't some rational subset of investors capitalizing on this opportunity?

I don’t think multiples are the issue. The question is: are companies set up to support a philology of long-term decision making? Talk to almost any middle manager in any public company in America if you are confused about whether this is the common case today

> I don’t think multiples are the issue

If multiples aren't higher, why would a company list on your exchange versus on the public market?


Companies care about many things other than mere multiples. And there are many factors that influence multiples. So I think it's accurate to say that companies consider many factors when deciding where and how to list.

Right, then, what are some of the factors that would make it preferable to list on the LTSE?

If investors are not irrational about the long term, then I don't see how there can be a problem. Prices will correctly reflect long-term expectations, and managers who are paid in options/hold equity will face the right set of incentives. If managers focus on the short term it's probably because it maximizes long-term value.

It's kind of interesting to think about growth profiles over time. To grow over some long term span, like say 10 or 20 years, did the growth all take place in the last 90% of the interval or evenly throughout. I guess the premise of a company growing throughout all the short intervals across a long span of time is a good way to know at least something will be there down the road that's not too far off the mark from where you'd like to be with your investments. I'm trying to think of the reconciliation of short term vision with any wisdom contained therein with respect to long term gains.

There's a lot of literature on this topic, and many empirical studies that call these assumptions into question. Just picking one at random from the set I've seen recently: https://www.ey.com/Publication/vwLUAssets/EY_Poland_Report/%...

What evidence do you have that investors are not irrational about the long term?

>We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

I've heard many a company say one thing and act another. How will this be different? Will delisting be the repercussion of short termism?


Yes, all of our standards are enforceable, that’s part of the responsibility of being an SRO. When a company makes promises as part of listing on LTSE, the public can believe them

Nothing here seems very "concrete" TBH, it all seems quite "hand wavy" and vague.

Can you provide any specific examples of standards that could be enforced, and how?



Let’s say the largest flagship company on LTSE decides to move to short-term governance strategies.

How can investors be sure this company really would be delisted, even if it’s the company that makes LTSE the most money?


Everything we do is completely transparent. If a company deliberately violates the policies they have publicly adopted, not only would they be delisted they would likely be committing securities fraud. I think it's likely you'd hear about it.

You imply rather than state directly that you fear our regulatory decisions would be influenced by our commercial interests, so just to address that part, we have an extensive set of checks and balances in our own corporate structure that double-buffer these decisions.


Thank you. I thought I was being direct but I’ll try to be more so.

Just to be clear, I don’t doubt you personally in any way, it’s more that I think it’s an enormously difficult problem to get a group of people to take action on something when they will receive a lot of money by NOT taking that action.

More specifically: companies are already supposed to take the wishes of long-term shareholders into account, and boards are supposed to enforce this, yet in practice this doesn’t happen much because, well, incentives dictate otherwise.

Can you share some of the checks and balances that would stop the exchange itself acting in its controllers own short-term self-interest?


What happens to the shares of a company that someone buys on this exchange if it is delisted? Do they have to then somehow sell them on another exchange? Wouldn't delisting harm the value of those shares, if they can be sold elsewhere? Wouldn't that cause serious financial harm to holders of those shares, who bought things on the LTSE expecting long term viability?

I think part of the idea is between reporting requirements & articulated statements about what goes into that reporting, by failing to report or failing to live up to those goals, you get to use the existing teeth (and defenses) associated with investment fraud. For any constructable issue rather than just purely quarterly financials, you can hold the company to account, and protect decisions that might be for some new goal in their bylaws [but also might appear against an immediate short-term financial gain].

My insight from watching Eric give a talk about the exchange:

https://longnow.org/seminars/02020/feb/24/long-term-stock-ex...


This might not be a great comparison, however, when Japan was ascendant some of that might was attributed to their “long-view”. Companies on the nikkei were government backed and didn’t have the same quarterly results demands seen in other exchanges... and that was proven right to about the mid-90s. Then it was revealed that those companies on occasion invested in areas they had no expertise or had poor returns. Not that the current system of chasing quarterly results is good, but how is the Japanese experience avoided?

As with everything, there is a delicate balance to be maintained. Toyota is an interesting example from the Japanese context. Luckily (?) things are today so out of whack that I don't think we have to worry about overcorrecting - for now.

Will the exchange impose any restrictions on the buying or selling of stock?

We offer the same level of liquidity as incumbent exchanges, per SEC requirements

Will those corporate governance guidelines be publicly available? Are shareholders able to influence these guidelines at all?

Yes all of our listing standards are publicly available both on our website and in numerous legal filing

Yes, we believe in the role of long-term shareholders in corporate governance


Why is a new exchange the right model for this rather than lobbying for different SEC requirements?

What do you define as long term? At some point, the best answer for longevity is for a company not to exist at all, given that the purpose of most companies is extraction, or some sort.

We will endeavor not to list such companies

> We require companies that list with us to adopt corporate governance that aligns their behavior and incentives to the long term.

How will you handle companies that eventually go against the required guidelines?

Could a company become permanently unlisted? And how would that affect any shareholders of the company who purchased through LTSE?


Yes, we have the power to delist companies, although I hope it never comes to that.

Shareholders would have their ownership protected in that scenario (as they still own common shares), same as any other company who was delisted from an exchange


Congrats to Eric on this.

The thing missing from this article is: What does this actually mean? When will companies start listing? Who will start listing? How do companies list? What are you offering? etc.


Yes, interesting article. Though, if this were a software announcement I'd label it vaporware.

this article feels like when one person at a bar tells me about their startup that has like 0 progress.

lmk when this materializes I guess.


This short-term-pervades-the-market is based on the idea that the current stockholders are able to trick future stockholders into buying stocks that have eaten their seed corn, before those future stockholders realize this.

How can this process of continually tricking the next investor possibly work out quarter after quarter? Wouldn't the stock market have tanked long ago if this was, in fact, underlying the bulk of the market valuations?

The reality must be, as soon as investors realize a company is short-term only, they dump and run from its stock, because they will be unable to trick someone else into buying it at the high price.

Some years ago, I knew the CEO of a company who said he did the financials "according to what Wall Street short term investors wanted". The stock promptly tanked as investors actually do not invest that way, and certainly don't want to invest in companies that eat their seed corn.

Take a look at the companies with the biggest market caps in the world - who thinks they are driven by short-term thinking? I don't. The investors obviously don't. And the rewards of long-term thinking are off the charts.


>How can this process of continually tricking the next investor possibly work out quarter after quarter?

I imagine that if the next investor was someone like a retirement fund this could work out pretty well, since they have a steady flow of money being paid in. I don't know to what extent that actually happens.


Retirement funds lose their investors if they do poorly.

If short term investing wasn’t valuable why would real estate closest to the stock exchange be priced higher simply because it enables HFT to shave milliseconds of execution time?

I meant short term being the notion that companies are sacrificing long term growth for the next quarter's results.

I was tracking, I just don’t think the two points are completely uncoupled. If individual companies and by extension the market are long-term focused, there shouldn’t be that much incentive for trading now vs trading 1 sec from now.

Unless I suppose you think those who trade companies and those who run companies aren’t intertwined. I do v think there’s some evidence of short term bias. E.g., taking on debt to fund dividends to give the illusion everything is fine


1 second trades are more an arbitrage thing, not a short-term vs long-term thing. I don't believe quarterly results have any particular influence over high frequency trading, other than in the minutes after the earnings are announced.

Arbitrage is like pouring water into the bathtub. The water will slosh around, eventually finding its lowest energy level, until the next pouring event. Arbitrage is the pull of gravity mixed with friction.

> taking on debt to fund dividends to give the illusion everything is fine

I know that some companies do this. I find it strange they imagine they can fool investors doing this, because they aren't fooling anyone. See the CEO anecdote I posted upthread.


>See the CEO anecdote I posted upthread.

I think there may be some survivorship bias in your thought process. As an example, Enron displayed some massive short-term bias when it had a market cap more than 10x that of Apple. Sure, the market eventually corrected (and wiped out a lot of investors along with it), but pointing to current thriving large cap stocks as evidence of the market only rewarding long term thinking disregards this. In theory, Enron should have never been priced so high had it not had a short term bias to inflate numbers


Enron was actively engaged in accounting fraud, which is a crime and not merely short-term thinking. Once word got out that the company had no actual value, its stock went literally to $0.

But consider the S&P 500. It has its ups and downs, but with an upward bias that has lasted since, well, long before I was born. If the market in general consists of Enrons defrauding their investors, or companies self-destructing by taking only a short term view, how can this upward bias be explained?

If you really believe the market consists of short-term thinking, you can make a fortune shorting those over-valued stocks. Can't say I wish you success doing that, as I am long.


Enron inflated their numbers for short term gain. One example is how they claimed VOD revenue that hasn’t yet occurred.

I get the impression you think I’m claiming the market is always short-term biased. As with Enron, I think the market can be biased in the short term while still being accurate long term when those biases are realized and corrected for. As I think Buffet said, in the short term it’s a voting machine but in the long term it’s a weighing machine.

The problem is if you get caught confusing the two. Just ask anyone who planned on retiring around 2008. The difficulty is knowing when you’re being “irrationally exuberant” or not. We humans are awfully good at fooling ourselves.

Same with the S&P. It’s easy to claim it goes up in hindsight... unless you’re needing to cash out on those sideways decades. It’s not claiming a long position that’s hard, it’s timing it correctly to avoid those sideways and down periods that’s difficult.


I concede my point on HFT, you make good points about it being more about arbitrage.

>they aren't fooling anyone

I disagree on this. Maybe they don’t fool sophisticated investors that make up 80% of market money but I’ve met plenty of small investors who are duped by this very type of thing.


It's hard to imagine successfully duping investors quarter after quarter, year after year, decade after decade with ever more fanciful quarterly reports.

Yes, over the long term the market will correct itself. But in the short term many people can lose their shirts over short term gamesmanship

I don't understand from the website this bit which is about the "Long-Term Stakeholder Policy". What was the motivation for adding specific fields to this policy regarding diversity, the environment, and employee retention strategies? are these just examples?

- The company’s impact on the environment and its community - The company’s approach to diversity and inclusion - The company’s approach to investing in its employees


We wanted to make it explicit that these issues must be addressed in the stakeholder policy. Mostly we did this to create clarity for the regulators as to where such disclosures will live. This language mirrors other SEC-approved rules, but with stronger disclosure requirements here

It’s not meant to be an exhaustive list


It's a gov policy, really: companies get special status, i.e. smaller taxes, if such and such criteria are met.

Buffett, Bogel, and other famous financial folks signed a doc to overcome short-termism in 2009 that goes into more technical details: https://assets.aspeninstitute.org/content/uploads/files/cont...

Modern executives have incredible pressure to hit quarterly numbers and the ones that provide value in the long term are the ones that can effectively ignore this pressure.

Short term pressure also forces firms to play accounting games like taking big goodwill impairment losses in a down quarter, so they don't need to perform a writeoff in subsequent quarters.


This is a good example of an accounting trick that should not be allowed by an exchange-listed company. It’s simply a trick to make a loss not count against earnings. It’s not even shown as a liability like a self-loan would. In M&A situations it’s usually shown as an asset. The point being that you can’t trust the earnings number and you can’t trust the balance sheet asst value, so you really don’t know anything about a stock. I’m surprised that no analyst firm has published a common GAAP-based valuation. Perhaps because it’s impossible, but that underlies the problem for small investors.

Given current 50x multiples and high valuations for unprofitable tech companies I don't think there is much evidence that that current stock markets are unable to value long term ventures. As well the extent to which a company is expected to deliver quarterly results is more defined by their board and capital structure than anything in inherent to NYSE or the NASDAQ.

Congrats! Aside from viewing volume, where can I see the individual stocks listed on the exchange?

Also, as a side note, it would be interesting if you had an LTSE index fund!


None are listed yet. Give us a little time, it’s only Day One

Echoing what somebody else said, "open for business" feels a bit disingenuous from a retail investor perspective as there is no place to trade stocks, no sign up, no stocks listed etc. A more restricted announcement (read directly to companies) would probably have been a better idea to gain that critical mass.

For reference, whenever Uber/Lyft "open for business" in a new city, they don't just flip the switch to enable the app in an area. They work towards gaining a critical mass of drivers to ensure reasonable quality service levels, incentivize drivers to stay online as rides trickle in etc.

Or is this the "Lean Startup" approach to get a feel for the reception of the idea though I'd imagine that was done before you got started on building the product :)

Overall, I am very excited for what you're building and will watch out for more substantive updates! It is super cool that your team is working on challenging the status quo in an unconventional manner.


I don't understand this criticism. We are actively trading stocks today: https://markets.cboe.com/us/equities/market_share/

You can call your broker right now and ask them to direct your orders to a specific exchange, including "L" on the SIP.


Eric, you are a smart guy. I think you should pay attention to the signal.

Multiple people have mentioned a similar thing. I have had a similar experience.

While it may be technically accurate that the “LTSE is open for business”

My expectation and others also seem to have had a similar expectation after reading the announcement was:

We can now purchase shares in companies that are listed on the LTSE. Having tried to get more info on companies listed on the LTSE, we are finding none.

“Open for business” is never defined.

It says

“Today, after months of booting up, I am thrilled to report that the Long-Term Stock Exchange has opened for business with a mission to support companies and investors who share a long-term vision.”

There are a few potential options:

1. oversight , without the realisation that people will assume the LTSE has shares listed on it which can be traded

2. Deliberately designed to lead people to think the LTSE has shares listed on it in order to test. Lean startup and all that.

On a other note long range planning and thinking is difficult, due to discounting and uncertainty. A massive impact can be had if more people could think Though multiple causal generations down.


I don't know why you would assume that a stock exchange being "open for business" meant having a company listed. If you have a company to list, LTSE is now a place you could take it public. Yesterday that wasn't true.

Maybe it's people used to stock exchanges treating companies as the product, instead of as their customers? If so, you seem to be demonstrating the problem LTSE is trying to solve.


So you can buy stocks through the LTSE that aren't listed on the LTSE? If so, why would someone do that?

I think GP's point is that you're saying "we're open for business", but the LTSE isn't offering people who buy stocks any added value yet.


Yes, you can buy or sell any US exchange-listed security on LTSE starting today. If you check the market share tracker at CBOE you can see the "notional dollar value" of the shares which have transacted on the platform today: https://markets.cboe.com/us/equities/market_share/

It's clearly not zero, so somebody sees some benefit in it. So I don't see the issue with saying that we are "open for business"


Apparently the overwhelming majority of HN audience doesn't really know how the basics of what a stock exchange functionally does (including myself). I'm starting from here, "Getting to Know the Stock Exchanges"...

https://www.investopedia.com/articles/basics/04/092404.asp

Anyway, maybe a good question for someone familar with the technical details - why is there so much volume already flowing through LTSE? Is it just arbitrarily included in some standard broker software application such that it doesn't make a difference to them? Since apparently there is already nearly as much volume traded on LTSE as there is through Nasdaq.


And thank you for the kind words. Love the index idea

How would I buy a share of a company on LTSE today? Does any major online brokerage work with LTSE?

Yes, the major broker-dealers and market makers are members of the exchange. You can route orders to LTSE via your existing broker, just call them up and ask them to do so.

I believe Interactive Brokers, in particular, extends this privilege to all of their retail customers. But I don't have first-hand knowledge of this, just what I've heard.


Do I have to "call up" a broker to do this trade? I've only ever used online brokerages. Am I just supposed to call Etrade's 1-800 number or something?

EDIT: Wait a minute. No individual stocks are listed yet on LTSE https://news.ycombinator.com/item?id=24421925 so what am I supposed to ask them to do?

When I want to buy a share, the first thing the brokerage asks me is the stock's symbol. Without any listings, what am I supposed to tell them?


Today's announcement is about our ability to trade all US exchange-listed securities. It's not about listing our own equities. This is what it means to be a National Securities Exchange in the US.

So if you want to trade any US exchange-listed symbol, your broker can do that on LTSE (assuming they are a member)


So I could use LTSE to buy a share of MSFT? But MSFT hasn't agreed to follow any of the LTSE's rules. Why would/should anyone buy MSFT on the LTSE?

Or maybe the point is: there's no point in buying shares with LTSE today, even though you technically can do so, and instead I should wait until there are individual listings and buy those?

(And even then, I don't need to use LTSE, I can just buy their shares on NASDAQ with Etrade like I always do…?)


Correct. There is no need for you to transact on LTSE for the specific use cases you've outlined in this thread. We are open for business so, for the first time, you're able to if you want to.

Forgive the stupid question, but what's the continuity plan LTSE shuts down in a decade. Who does my share of MSFT go to?

Exchanges don't hold your shares, so once you have them in a custodian account you can do whatever you want with them, regardless of what exchange you acquired them from.

Every broker has its own internal rules about where to direct its order flow. Some "internalize" the trade and don't send it anywhere. Others get paid to direct the order to a specific market maker, exchange, or dark pool (called PFOF).

Others allow their clients to direct orders using a specific trading strategy. If you have a family office it's very likely this is part of the strategy.

However, ordinary retail investors are sometimes locked out of this system. I don't know Etrade's policy in particular, so I can't say for sure what you would have to do.


Same question. How do I buy a share?

Ask your broker. They are probably a member already.

"Ask your broker" is so 1998.


Not really. In general exchanges don't sell directly to the public, they interface with brokers both human (1998) and electronic (2020), who sell shares to the public. "Ask your broker" means call them up if that's the kind of broker you use, or check out their website FAQ on order routing if you use an electronic one.

The real solution for better aligning corporate incentives with long term investing is to reform the public company board structure. The problem is current public boards are controlled by insiders, both C suite execs and entrenched board members, which leads to insular self dealing. Every CEO over time pollutes the board with their cronies to maintain their power base.

The solution is simple, allow shareholders to propose board slates. That guts the power of insiders to control the company, but the SEC has never had cajones to make it happen.


Suppose LTSE becomes a thing, and they find some companies that they can certify as Long-Term(TM). What stops those shares from being traded on some other exchange, eg BATS?

What is it about the venue that makes it special? It seems that once an investor thinks a company has some desired characteristic, all they'd care about is where to get the shares as cheaply as possible.


NMS shares can trade on any exchange, but there is still a primary listing exchange. They're mainly (AIUI) responsible for publishing data on various administrative minutia such as the handling of dividends and splits. I imagine most of LTSE's attraction to companies is enhancing the perception of only accepting listings from companies with a long-term view

Much like as an investor you'd think twice before purchasing an OTCBB share today, or perhaps 30 years ago pay more attention to the difference in listing requirements between Nasdaq and NYSE, I think that's what's intended here


I think the companies can be traded on any exchange - it's not really a function of stock price. The LTSE kind of venn-diagrams around the requirements of the other exchanges (for now). So a company is then held to different (greater) standards (even if its also listed on other exchanges).

PS. we are hiring: https://jobs.lever.co/ltse

> This is an opportunity to join a new stock exchange at a critical time in its development as our first IT Engineer

First IT? Wait, how is the exchange running?


I hadn't thought of parsing the sentence that way. We mean our first hire dedicated entirely to IT (as opposed to other forms of software engineering)

I’m a senior software engineer and software architect at a tech giant that has been lucky to have the experience of launching a new product twice, operationally treating it as a well funded startup and growing it to multimillion dollar revenue while instilling development practices that ensure quality while also being adaptive to change. I read the job description for the senior software engineer posting, and at first thought I might be a good candidate.

I generally want to dedicate my efforts to long term betterment of humanity, rather than “we make the world better by making a mobile app for dog walkers” sort of thing, so this position is attractive to me. However, this “full stack” position mentions only JavaScript and Rails as required experience.

Is your entire stack Rails and JavaScript? That turns me off entirely (and makes me unqualified).


I interviewed with the team not too long ago, didn't get the role in the end but the team was lovely and the interview process was great. Would recommend giving it a shot if you're at all interested, there are some great people working there!

Thank you for sharing. I’m delighted you had a good experience

Having a hard time groking what exactly LTSE does differently.

What are the specific features/differences between LTSE and other markets?

Will companies listed on LTSE be listed exclusively there, or also on other markets?


I've posted links elsewhere in this thread to the exact points of differentiation. You can even read the legal filings, if you are so inclined.

We support (and encourage) dual-listing, so that a company can still benefit from our protections while accessing liquidity at the open/close from a legacy exchange.


What protections do you provide for companies?

I read this post and its vagueness gave me no info. Where's the link to the LTSE? How does it work? What's the plan? Any quantitate metrics?

Many private companies are staying private for longer, with an average time from launch to IPO creeping up toward 10 years or more. Most unaccredited investors are missing all of those substantial early gains.

Does LTSE have any plans to help speed the path to IPO and let more unaccredited investors participate in early growth and success?


It is my hope that we will be able to reverse this trend by making the experience of being a public company dramatically better. It will take time to see this play out, just as it has taken time for us to get into this mess.

But in the long run, it's important that the broad public be allowed to participate in growth investments, and I think the public markets could once again be the best place to enable that to happen. Frankly, I think it's immoral that at a time in history when we are pushing more and more of the responsibility for people's retirement onto individual savers, we have also made it illegal for them to make most growth investments. If we don't correct this imbalance, I fear the backlash to tech will only worse and intensify.

Tech didn't cause this problem but we will bear the brunt of the backlash if people feel left behind.


So, do you anticipate startups being able to IPO on LTSE at some point?

There is no need for a long-term stock exchange.

If you want to encourage long-term investing, "all you need to do" is change investment taxation.

Equities held for less than a minute? 100% tax. A year? 20%, like the US today. Five or ten years? Zero.

Boom, HFT gone, and a sudden rise in long-term investing.

But the devil's in the details, in this case the length and shape of the curve.


This would discourage market makers form entering the market, increasing spreads and investors would pay more to execute.

The entire trading industry is formed around the public markets. Large financial firms, both in accounting and investing depend on revenue from the quarterly reporting. I'd expect a tremendous amount of resistance to moving companies to LTSE.

Do you expect that any firms will transfer? Or do you expect a new ecosystem to develop side by side, over time?


We have indeed seen quite a bit of resistance, as you say. I kind of think of it as carving the grand canyon with water and gravity. With sufficient time, determination, and patience, you can make remarkable things happen. We've been able to win over many former skeptics to become allies over the years.

I can't predict the future. I know there are existing public companies for whom this would be a great fit. Can they overcome the inertia and bureaucracy that tends to set in once you go public enough to make a farsighted bet like this? Or will it be up to the next generation of corporate leaders to act with boldness? Time will tell.


It seems to me that defining this space could be admirable foresight in the (perhaps unlikely?) event that government begins to deal more fiercely with the known abuses of big business and the stock market. (and that, is a potential argument in its own right: let's postulate that there are people out there who consider this whole area pretty toxic)

So, as things stand, the status quo is strongly reinforced, and being extremely toxic is strikingly rewarded. In the event that this never changes, there's not a lot of place for a Long-Term Stock Exchange or anything like it. That holds even while the status quo, being 'extractive', begins to do serious damage to all the stuff we like and care about. So long as the rules favor toxicity and are written by those who stand to gain by it, this proposal is a joke.

But we are also postulating that there is reason to believe such 'extractive' behavior has consequences: call 'em externalities. There's plenty of history on how business can continue that way, even to the point of open warfare, murder of strikers etc. so we know there's motivation to cling to 'extractive'. But history also tells us there's a limit, and societies can turn against this sort of thing in whatever form it shows itself.

(side note: I spent part of yesterday trying to help Amazon not be toxic. I got an LED light being sold as a light therapy tool, $40 or so price but might only be a few bucks worth of LEDs, and I did not order it. Someone's using my name and address, with their own email and credit card, so they can review things as me. It was very tough to get the situation understood by Amazon. Yet, the product reviews had already been frozen for suspicion of fraudulent reviewing, and the product was fulfilled by Amazon and was literally #1 in its category. This is a form of toxicity that leads to Amazon's brand being garbage because you can't trust a thing they say.)

In the event that government changes its approach and begins to deal more harshly with the abuses of big business, which is far from unthinkable, this Long-Term Stock Exchange and seeking to comply with it might be a useful form of virtue signaling by companies that are trying to avoid being targeted as bad actors. And the requirements of the LTSE could track the legal requirements by government as they develop, making the exchange a 'safe haven' and public show of good faith.

The contrast with what you have to do to please current stock exchanges and those who follow them, could not be more striking. It's become very obvious that shows of BAD faith (by certain political standards) are required by the existing investor audience, which seems correct in believing that right now companies are held to no consequence other than beating other companies in making money by any means, full stop.

If that IS stopped, the meta-market (market of money holders seeking markets) would be hot to find a place to invest that was more safe from unwanted consequence.


This is one of my top 5 underrated ideas that I'm so excited to see launch. This could redefine the relationship between investors/founders/operators which is clearly driven by quarterly financials. Then go listen to how people like Jeff Bezos think about building strong companies. Clear misalignment. You have to be so strong as a founder that you can resist the urges of the market to think long term.

Excited and hopeful that LTSE might make that type of thinking engrained in all businesses!! Just might take building a stock market to get there :P (which is an incredible feat)


According to this comment https://news.ycombinator.com/item?id=24423448 there is nothing they can do about quarterly reporting, so unfortunately the shift in thinking will have to happen under existing regulations.

My understanding of this is quite limited at the moment but I'm curious to learn how and why companies would benefit from signing up for the LTSE and what effect it will have in practice. There are requirements such as a "Long-term Strategy Policy" but it seems like pretty much a leap of faith / honor system for the company to upload the principles.


Each principle requires a corresponding policy enactment / which must be verifiable and enforceable

thank you!

where are the VCs that share this vision? when I tried to raise capital on a long term vision for our hardware startup I got laughed at.

Tell me about it...

Try Nick Hanauer.

I dunno, it seems like most VCs care about long-term visions. I mean, look at Uber and such. Still unprofitable.

it's like with banks. once they've put in a substantial amount of money, they can't pull out anymore. it's a case of "too big to fail".

"They described the immense pressure on companies to pursue short-term results over creating value for future decades and generations."

Where does this pressure come from? The board? Can't you appoint a board that is long-term friendly? Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA? Shareholders? Shareholders agree to all sorts of craziness if they like your company (see voting structure of Palantir, Facebook, etc.)

Maybe others can elaborate on what problem is being solved here.


The pressure comes from investors. (The board is elected by shareholders, so in theory they represent the wishes of investors).

It's extremely difficult/rare to find investors who will just sit back and trust the CEO run the company as they see fit, particularly in a world where "unicorns" are going from zero to $billions in a few years. It happens occasionally, but only in the case of extreme outlier companies where the company is already a rocketship and thus the CEO/has already proven themselves - e.g., Apple/Jobs-post-mid-2000s, Facebook/Zuckerberg.

Whilst plenty of companies could reach huge scale over a longer period of time, it can be difficult for investors/outsiders (and indeed the management themselves) to know whether their company really is a slow-building long-term winner vs a zombie.

Perhaps what the LTSE is doing is attracting investors who are willing to be patient over a slow/long-term build, but to also work with the companies to ensure they really are on a path to long-term success and not in zombie mode.


I don't know why people continuously repeat this narrative. Two of the largest companies in the world, and in the history of humankind, are constantly marched higher by this "shortsighted" investor base: AMZN and TSLA.

People say companies pursue short-term gains but in reality they just mean they pursue things they disagree with. And herein lies the dirty secret: professional investors aren't short-sighted, they just don't value the things you do because (shocker) the average Joe doesn't really understand how to create shareholder value.


I said right in my comment there are exceptions, and inevitably the exceptions are the outlier-success companies.

Both companies you mentioned have had particular conditions that allowed them to be long-term focused. For Amazon it was that they achieved huge growth and cash flow from very early in their history and so Bezos has been able to call the shots. For Tesla it was that Musk was already rich and could spend several years investing his own money before needing outside investment. (And by the way, just look at the crap Musk has to deal with from a major segment of the investor community as he seeks to pursue a bold long term vision; and he’s one of the greatest force-of-personality founders ever).

These conditions don’t apply to unproven founders relying wholly on outside investment, working on opportunities that may not yield rapid growth and cash flow in the short/medium-term.


> Two of the largest companies in the world

Survivorship bias?


No, because the whole premise here is that investor behavior prevents this kind of bias. You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.

I think we have a communication hitch here:

> the whole premise here is that investor behavior prevents [survivorship] bias

WTF? How the heck is some "investor behavior" supposed to prevent you (or I, or anybody) from succumbing to a common human mistake made when analyzing data and discussing it here in the comments-section?

> You can't take the whole argument and then cast massive, glaring contradictions to the core premise as merely bias.

Back up: You're using a straw-man argument, a false version created out of black-and-white absolutes, rather than trends and high probabilities.

___________

Consider this fictional conversation:

A: "Playing the lottery is a sucker's game, you're almost guaranteed to go bankrupt."

B: "But look! These people bought a lot of tickets and won! They're multi-millionaires now!"

A: "That's survivorship bias. You're not considering the huge numbers of not-so-notable people who lost money instead."

B: "No it's a massive glaring contradiction to your core premise! You can't brush it off as bias!"


I have no idea if this solves the problem, but I think the problem is shareholders. Specifically, a proportion of shareholders favour short-term profits, and those shareholders outcompete the long-term minded shareholders leading them to have greater influence over time. These short-term shareholders are extracting value at the expense of wider society, and it's a massive problem.

The proportion being ~100%? Then they can move on and suck some other company dry.

On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses.

If PayPal et al. had retained profits in the business for a long term goal, a substantial number of innovate companies couldn't have formed.

The more nuanced problem is likely that short-term and long-term shareholders' goals are mutually exclusive. That is, there is a rarely a strategy that's optimal for both.

Coupled with the fact that some businesses (apps!) favor short-term strategies, while others (biotech!) favor long-term strategies.


> On the other hand, short-term shareholders, inasmuch as they prefer returned capital, are then freed to invest in other businesses.

I'm not sure that's a benefit if they then destroy those businesses too.


Not all businesses are productive. Look at a few decades of Japanese economic history.

If capital is tied up in a failing business that's pursuing a "long term strategy," then it's not freed for new businesses.

SpaceX and Tesla (to name two HN faves) probably wouldn't exist had PayPal retained more of its capital.


One solution might be for shareholder votes to be weighted by the length of time they commit to hold the shares.

If you need money over the long term and you don't want to relinquish control, we have a thing called the bond market. Borrow for 5, 10, 30, heck, even 99 years and your interest is tax deductible! (Borrowing longer than 99 years the IRS may want to talk to you. Your bonds start to look like preferred stock.)

Wait -- the bond market won't lend to you cause they don't trust your ability to generate that return for the next 20 years? Go to the junk bond market -- they'll lend to you. In fact here's an idea go to the junk bonk market, and borrow money to take your company private -- out of the hands of those grubby short term shareholders.


The public markets aren't just designed to maximise shareholders value. Maximising shareholder value is supposed to be a means to maximising societal value. If the shareholder model isn't doing that then it isn't fit for purpose.

The perpetual, limited liability enterprise as legal person, owned via tradeable claims on equity, managed by professionals distinct from the owners, what we call modern financial capitalism, has been a boon to the world. Obviously it’s not the only way one could organize productive endeavors. But it’s pretty well understood that it produces greater long term economic growth than any other competing system. It has known shortcomings, but maximizing shareholder value is a really good solution for the agency problem introduced by the creation of a non-owner managerial class.

> it’s pretty well understood that it produces greater long term economic growth than any other competing system... It has known shortcomings.

I mostly agree that it's better than other system that we've tried in the past (although I'd argue that the more highly regulated capitalism with higher taxation levels of the 60s-80s was slightly better than our current (post-90s) deregulated system).

But I'm a bit more ambitious than you. I don't think we should rest on our laurels and accept the known shortcomings. I think we can do better, and I think we should actively look at doing so.

I feel like maximising shareholder value is a mediocre solution to the problem introduced by the creation of a non-owner managerial class. I'm not entirely sure what the best solution to the problem is, but I'm convinced that we need a better one than the one we have.


I'll give a shareholder's perspective. Management, when left unchecked, frequently engages in in wasteful empire building and prestige projects. The most apparent manifestation of this is in mergers and acquisitions. Decades of evidence shows that the median merger destroys shareholder value for the acquiring company.

Imposing strong controls on corporate management is one of the most important thing that shareholders can do. This might take the form of independent boards, which aren't handpicked by the CEO. Or the removal of poison pills (which raises the threat of a hostile takeover for underperforming companies). But most important of all is the existence of transparent, consistent, regularly evaluated metrics. That means quarterly earnings targets.

Like any job, CEOs need consistent feedback to keep their incentive aligned with those who employ them (shareholders). Management has shown time and time again, that when monitoring is weakened, they go off the reservation and destroy shareholder value. The good thing about earnings is that it's they're easy-to-measure, hard-to-fake tangible proof of continuing performance. In contrast stories about "long-term value" or intangible promises of future rewards are usually BS used to justify extravagant empire building while the CEO uses the company's balance sheet as his personal piggy bank.

Lest anyone think that evil Wall Street shareholders are hobbling visionary CEOs, observe the rare cases when management does prove its credibility. Prime example is Amazon, which time and time again has scarified short-term earnings for long-term development. And nobody could possibly claim that it's punished by Wall Street for this. The difference is that unlike 99% of CEOs, Bezos has conclusively proven his ability and alignment with Amazon shareholders.


Bezos was an investment banker.

Before he had the track record of long term development (only born from long term efforts) he knew how to speak Wall Street and had a track record on Wall Street.

Most CEO’s will never be capitalized like him for long term empire building so it’s hard to say there couldn’t be more Amazon sized successes out there if Capital was more accessible for longer term visions.


This seems sensible. If you want the goodwill from your investors to make a long term bet like Amazon did, you need to explain it to them in terms they can understand. It's a language anyone can learn with sufficient training and experience.

Wait, I thought Bezos was a quant, not an investment banker?

He worked at bankers trust, but not as a banker, and then at a quant hedge fund, but not as a quant.

Bezos was never an investment banker.

Management left unchecked just does what they're incentivized to do. You can't pass on the blame as shareholders when shareholders create incentive packages that reward getting a bonus today for an acquisition instead of not really getting paid for sustainably growing the business over the next decade.

People say that shareholders "own" a public company, but that ownership is much more limited than ownership in the normal sense. In reality shareholders have very little direct input on how the CEO gets paid. The best chance for shareholders to influence CEO incentives would be if an activist investor got involved and made it an issue, but that's fairly rare, and usually only happens in the most egregious cases.

Share loans are a really simple way to align incentives. Execs get shares loaned with interest at market value, and can’t sell faster than the loan repayment schedule of 20% per year after the end of tenure. Some other rules apply like dividends can’t be paid from a negative value loan. Sure, option incentive packages try to approximate this, but they can’t legally capture the downside like a loan can.

Management in many companies are just puppets installed for the purpose of keeping a person or group of persons in control. You'd be surprised at how many companies have management that has the decision making capabilities of a toddlers. And when I say toddler, I mean that in a literal sense. You can take an intelligent toddler and have them make day-to-day decisions that would be BETTER than middle-management.

> Decades of evidence shows that the median merger destroys shareholder value for the acquiring company.

As an investor, I care more about the total (sum of average) returns of mergers, not the median. Just like in venture capital (where the median investment is clearly negative), the total return matters and is driven by the large returns on success.

I'd still be happy to invest in Berkshire Hathaway in 1955 even if you told me that their median merger over the next 60 years would be value destroying (so long as the average would turn out the way it has).


>the median merger destroys shareholder value for the acquiring company.

Median doesn't seem like the right metric. If you measured VC by median outcome I'm sure it looks like they always fail.


The evidence is that the merged firm is worth more than the two component firms, but it's the target that reaps the gains. This suggests that acquirers tend to overpay.

See page 111 of this survey paper: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.15.2.103


"go off the reservation" .. I suspect that my father many decades ago engaged in casual references like this, but I recall as a child that it was frowned upon by people who sought to reset and build positive relations between races in North America

Forgive me for straying OT:

It seems like a fact-based analogy. 'A group have been restrained to "territory", but a member has broken that restraint'. There doesn't seem inherently to be a judgement as to the restraint or the rogue being right/wrong.

I'd be interested in why you felt the usage was beyond the pale sufficiently that it needed to be reined in? The concept of territorial reservations doesn't appear to me to denigrate any group particularly; maybe I'm wrong in that?


Not the parent, but it's obvious what the origin of the phrase is, and while it may not be as icky as something like "open the kimono", it's definitely one that is trivially replaced with no loss in meaning, and therefore almost certainly should be:

"The issue with 'off the reservation' and similar phrases is that these things are said without any thought. They become a part of the common vernacular. Freely they move from mind to mind, mouth to mouth. Maybe the meaning of these sorts of phrases never should have been the issue. Maybe living lives without thinking about what we say and do is of greater concern."

https://www.npr.org/sections/codeswitch/2014/06/29/326690947...


We can also listen to the phrase without imputing immoral motives to the speaker.

Sure. No one is saying that the person is bad for saying it. Indeed, they're probably a good person, and for that reason may be interested in hearing why the phrase is better avoided. Particularly if their regular travels (friends, work colleagues, etc) may not put them in contact with indigenous people.

Certainly. I do not think the majority of the people using the phrase are racists that want to see the continued subjugation of indigenous peoples.

But we should educate them on why the phrase is one that should be avoided.


Is there some pejorative meaning to opening the kimono or is it just mildly lewd?

Would you use the phrase if there was a woman, especially an Asian woman present? If not, then that's your answer:

> “Opening the kimono” implies a coyness and sensuality that conjures up images of submissive Asian women reluctantly willing to show you their most vulnerable side. I understand why someone would use it just from the shock value alone. It took the wind out of me when I read it.

https://medium.com/@brunchandbudget/opening-the-kimono-on-op...


I wouldn't have thought much about when to use it, which is why I ask. Kimonos are worn by men and women. Its also Japanese in origin so it wouldn't consider it any sort of broadly Asian reference. Of course if people are taking it as such, I wouldn't use it.

>"The issue with 'off the reservation' and similar phrases is that these things are said without any thought

If they are said without any thought or connotation then is there really any slight against whatever group is the origin of the phrase?

He could have just has easily said "off in left field" which is arguably a slight against leftists and commies but has so long been a colloquialism that it has lost that connotation.


The name of the Washington football team was also used "without any thought", and that there was no need to change it as it wasn't meant as a slight against the group for whom the name is a slur. But it turns out that these things can be hurtful even if you don't mean them in a nasty way.

But yeah, "off in left field" is a baseball thing; no one is harmed or offended by that— even if you do apply it to politics or use it in a political context, as the WP article briefly mentions, politics are something you choose, not your cultural identity, so it really isn't the same thing at all: https://en.wikipedia.org/wiki/Out_of_left_field

Another interesting case is the phrase "balls to the wall" which has a harmless origin with aeronautics, but is spicy enough on account of an obvious alternative interpretation that it isn't used in polite company.


The first is a phrase steeped in the genocide of indigenous people.

Off in left field is a baseball analogy and has nothing to do with people left of center politically.


I did not see any racial connotations when I read this, let alone any negative ones.

It is quite explicitly related to the reservations that colonists have pushed indigenous people to. In America this situation was particularly bad for many tribes, and in general connotes a significant loss of freedoms and impact to culture even when there wasn't specifically physically violence involved. The actual phrased specifically originated as a derogatory term for any indigenous person who was not staying on the reservation. Frequently in telegrams requesting the army arrive to and eliminate the band of native peoples who were not living on the reservation.

The phrase has the trappings of genocide baked in, and people who have learned of the history of their ancestors are going to be reminded of that whenever they hear it. Even if you are not thinking of any of that, the term is primarily used to indicate someone doing something odd/crazy/wrong, which is fundamentally implying that any indigenous person who has done so is odd/crazy/wrong.

I think most people understand that its use in everyday vernacular is not usually intended to be racially charged, but that doesn't mean that people shouldn't be educated on the phrase and try to avoid using it. There are lots of ways to express ideas, and it's probably fine if we don't use the ones that are fundamentally tied to racist connotations, especially when indigenous people in many countries (US, Canada, Australia, among others) still suffer from systemic policies and actions that leave them disadvantaged to this day. (Casinos on reservations are a band-aid and do not solve the fundamental problems, for example. In America only 200ish of nearly 600 tribes run casinos on their land, and of those 200ish, less than half pay out per capita, and only a handful make significant money from their casinos - the payout is less than 10k/yr per person for the vast majority - less than the federal minimum wage assuming a 40 hour workweek)

Cliff notes: Just because you don't see one doesn't mean it isn't there and that the people that have lived their lives impacted by it will not see one and be reminded of the genocide their ancestors faced and the results of ongoing systemic racism today. It's a bad phrase. We should try not to use it.


Yes, it is (probably) related to Indian/Native American reservations, but that does not mean every utterance of an allusion to history is perpetuating racial injustice.

Frankly having people like yourself chime in at every juncture to tell other people they are perpetuating racism is cheapening the actual historical impact of these events. If you care about the people you claim to defend then do something to help them.

Please keep in mind the GP/GGP comment to this was folded for being offtopic.


>Frankly having people like yourself chime in at every juncture to tell other people they are perpetuating racism is cheapening the actual historical impact of these events.

That's an interesting take, and not one that I think you will find in common with experts on the subject.

>If you care about the people you claim to defend then do something to help them.

I donate my time, money, and other resources to a variety of causes related to helping disadvantaged groups. I might largely be wasting my time in attempting to educate people on the internet, but it doesn't mean that I do not do anything else.

Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful? It's a phrase that is quite strictly Othering in nature. Not only can it be hurtful to those that have lived with the repercussions, but it also helps reinforce the Othering mindset in those who did not.


>That's an interesting take, and not one that I think you will find in common with experts on the subject.

Many of these "experts" typically use outrage to justify their continued employment. Most of them come off as genuinely deranged to most of the people I know, so this isn't just a me thing.

>I might largely be wasting my time in attempting to educate people on the internet

You're not educating people so much as finding chances to belittle them.

>Why do you believe that uttering phrases that are fundamentally rooted and reinforce prejudice is not harmful?

You're trying to tell someone they are racist while not holding any racist opinion but for saying magic words. This is nonsensical. If black people call each other "the n word" then a word and its historical meaning and modern meanings are not necessarily linked to each other.

More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.


>You're not educating people so much as finding chances to belittle them. >You're trying to tell someone they are racist while not holding any racist opinion but for saying magic words

I have explicitly stated in multiple places that I do not believe people are racist or have any sort of malicious intent, and are likely unaware of the connotations. You can see multiple posts in this thread where I have stated this. I would, however, say that in an ideal world we all strive to be anti-racist, rather than just not racist.

>More empowering is, likely, accepting that a word or phrase may have had some racist element to it but removing the power of that racism (such as with black people calling each other the n word) as opposed to making it forbidden.

For the disenfranchised groups, sure. For everyone else? Not so much.

I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it. Most of what it says is arguing against positions that I have not held at any point, and is putting words in my mouth. I apologize, but I do not believe I can engage further in a productive manner here.


>I have explicitly stated in multiple places that I do not believe people are racist or have any sort of malicious intent

You're mincing words. If the people are above reproach then what they are doing is probably also above reproach. What you are saying is effectively "I'm not saying they or their actions are racist, but they actually are."

>For the disenfranchised groups, sure. For everyone else? Not so much.

This doesn't make any sense. The disenfranchised groups need to be empowered; everyone else doesn't need to be, they are already empowered (by your own logic). So if this works for the disenfranchised groups that should be enough.

>I am trying to assume the most charitable possible interpretation from this post, but I'm struggling to do so and respond to it.

I'm trying to point out your position isn't really consistent. If you want to help people then you shouldn't be trying to drag other people down. The points I am making are meant to show that, regardless of what you say, what you are doing "works" by trying to ascribe racism to people that are not exhibiting racism.

In some specific cases language use guides thought, but more commonly language is dictated by people's goals and the existing nature of reality. Language did not cause the world to exist.


> Maybe others can elaborate on what problem is being solved here.

I found these two URLs helpful in understanding how LTSE sees its role:

https://www.ltse.com/faq

> Q. Would companies that list on the Long-Term Stock Exchange report quarterly earnings?

> A. Yes. By law, U.S. public companies are required to report earnings at least quarterly. The difference is that the listing standards of the Long-Term Stock Exchange are designed to change the narrative for success, so that the quarterly results are viewed in context as part of a long-term narrative.

https://longtermstockexchange.com/listings/principles/

> Long-term focused companies should consider a broader group of stakeholders and the critical role they play in one another’s success.

The focus seems to be less on constraints on traders and trading, and more on policies that companies listed on the exchange must fulfill. So the LTSE doesn't have to be the exclusive venue for trading and a company can be dual-listed on LTSE and another exchange — the mere fact that the company is listed on the LTSE gives you a crucial piece of information.


Yes, I feel like more of an explanation is required. Investors in existing exchanges already understand the different metrics companies might be categorized under -- value vs growth, for example -- and this seems like "extra-long-term value." But does that require a new exchange, or just a new valuation for companies? How about an index fund that invests only in such companies?

I would probably invest in a "Vanguard Long-Term Growth Fund," and I would assume that companies that got themselves on such a fund would want to stay there.

Perhaps the LTSE includes new rules for things such as how often stocks can be traded, but this isn't evident from that blog post, or the first one referenced in the post.


In Europe, companies like LVMH and L'Oreal has bonus dividends or extra voting rights for long-term institutional shareholders already. Essentially, if you hold onto shares for over 1 year, 2 years, etc., you can offer shareholders additional incentives.

Do you have a source for this? I don't see how that could be possible, unless they created a new share class for these long term investors.

The price of the share has to be adjusted at the dividend ex date to reflect the drop of value induced by the dividend payout. If not every holder of the share class benefited from it, then this is obviously unfair.

Now if you are talking about different share classes, then they would have to either be issued to current shareholders (e.g as rights issuance, in which case every shareholder could have them, long term or not), or publicly traded (same thing basically, everyone could have them, long term or not), or privately traded. In that last case, I would not really say this is "for long term investors", it's more a matter of private equity / politics / governance. Don't expect to enter that kind of deal unless you are a _big_ institutional investor.


Specifics about L'Oreal. https://www.loreal-finance.com/eng/registered-shares-loyalty...

General discussion of the concept in France. http://jpkoning.blogspot.com/2016/09/the-french-shareholder-...

> Despite ensuing controversy in the French legislature over the fairness of elevating one class of shareholder above the rest, the ability to provide prime de fidélité was enshrined in French law in 1994, with several limits.


Thanks a lot for the information!

So indeed they provide you with a different share class. What is amazing though is that they have what look like an automated process to convert your shares from public to registered (private with fidelity bonus).

Reselling these shares is not really explained in the page though. They seem to imply that your broker will swap them for regular shares that you can then sell on the market.


There is no pressure. Good examples are Amazon and Tesla that make very little money and are valuable now because of their long term outlook.

If you really do believe it is investors driving short term outlooks, a different exchange wont make a difference to how many investors buy the stock.


> Shareholders agree to all sorts of craziness if they like your company

In my very limited experience, it is the _company_ which must accept all sorts of craziness from the shareholders rather than the other way around. Which is also how it stands officially...

> Institutional investors? Wouldn't the same investors interested in the LTSE also be interested in you on the traditional market if long-term is part of your DNA?

Not clear at all that they would, if individual officers expect to have to justify short-term-losses.


I think this is less about attracting investors who think long-term than it is about telling investors who think short-term to go somewhere else.

One of the problems with the regular stock market is that valuations are not tied to the future cashflow of the company.

This isn’t how the LTSE works but it would be awesome if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years. Combined this with a minimum holding period, and I dare people to bid $300+ for Tesla stock :)


I don’t get it. There are already plenty of public companies that pay extremely predictable dividends. This is a popular investment type for retirement portfolios, among others.

Why should they be on a separate exchange?


The dividend is not based on their cashflow. So if Apple is paying 1% dividend on a $100 stock price, but their cashflows increase every year, they're still paying you $1 every year.

What I'm suggesting is an exchange where the dividend is a fixed % of their cashflows. Let's say it's 1%. If their cashflow is 1 billion, then 1% of it goes to their shareholders. If it doubles the next year, then 1% of that 2 billion goes to the shareholders.

Combine this with a minimum holding period (ie 1 year), and you've basically now made the stock price equate to its fundamentals. ie how much cashflow it's generating in the future. If investors think it'll go up, they'll bid the price up. not because they want to sell it to a greater fool.


As I understand it, the dividend is set typically in a dollar amount and the % is a metric derived from that. I agree that the figure is (usually) a bit nonsense. However, I don't think your phrasing is as clear as it could be. If Apple announces a 10% dividend with a 1T market cap that's $100b in distribution. If the market cap doubles to 2T later that year, that dividend payment isn't suddenly updated to $200b; it just shows up as a 5% dividend in your typical metrics.

Yes, sorry I explained it incorrectly. That is the right explanation.

I'm not certain, but I think you just described a REIT.

The old Dutch joint stock trading companies were required by their charters to liquidate and return all capital to investors every couple of years. That enforces strict discipline on management. However after a few decades of that owners began to trust managers enough that a permanently capitalized enterprise seemed more efficient.

The development of modern financial capitalism is important and fascinating. These structures that we take for granted -- tradeable claims on assets, separation of ownership and management, perpetual life corporations, etc. -- all came about to solve particular problems.

Personally I don't foresee the LTSE succeeding, but I'm happy to see people try to innovate.


Fascinating. Do you have any suggested books or videos that track the history of finance?

The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (Studies in Monetary and Financial History) https://www.amazon.com/dp/0521457386/ref=cm_sw_r_cp_api_i_i-...

Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition https://www.amazon.com/dp/B017J5HBMS/ref=cm_sw_r_cp_api_r.pw...

Devil Take the Hindmost: A History of Financial Speculation https://www.amazon.com/dp/0452281806/ref=cm_sw_r_cp_api_i_.a...

A History of Interest Rates, Fourth Edition (Wiley Finance) https://www.amazon.com/dp/0471732834/ref=cm_sw_r_cp_api_i_-c...

A Splendid Exchange: How Trade Shaped the World https://www.amazon.com/dp/0802144160/ref=cm_sw_r_cp_api_i_Hg...


> if there was an exchange that required every company to pay a fixed percentage of their cash flows every year after X years

wouldn't this be roughly the same as bond markets?


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