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by cujic9
3167 days ago
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For a proper debunking, you need to address the fact that it's usually pretty easy to wring cash out of a business, but you can only do it once. That's why longer term investments are preferable. It puts the focus on building sustainable value for its owners rather than balance sheet gymnastics. Most of your argument here is in favor of liquidity, but that's not the issue in question. You're also mistaking the role of stock exchanges, which are secondary markets. It's rare for companies to issue new shares to raise money. Not only does it send a bad signal and piss off existing shareholders, but its also one of the least efficient ways of getting capital. They'd prefer long-term debt. |
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I don't think that's the primary point, because the CEO should have an incentive to profit from multiplying the future value of that cash, not simply "wring it out" and get a short-term bonus. I meant to lump in "wringing" with all other perverse-incentives for management that a short-term incentive structure creates.
> That's why longer term investments are preferable.
In the same sense that it's better for an employee to receive a single paycheck for the entire year on day 1 of employment. That is not necessarily realistic. If investments were not reversible there would be a lot less of them, just as there would be fewer hires if the entire salary had to be paid on day 1.
> It puts the focus on building sustainable value for its owners rather than balance sheet gymnastics.
Building sustainable value? There are a lot of assumptions baked into that idea. One person's sustainable is another person's "safe" course of action and another person's definition of greed. Suppose someone is starting a restaurant and expects it to be profitable starting in year 10. Most people would consider that foolhardy. Is it? Not necessarily, it depends on how profitable it will be. Notably firms like McDonalds were profitable fairly rapidly but grew in scale significantly over time. Where did the tradeoff between sustainability and short-term greed occur? Arguably early investors were not greedy enough, since the firm had to resort to franchising to fundraise.
> You're also mistaking the role of stock exchanges, which are secondary markets.
I am not sure how the Long-Term Stock Exchange will work, but my point is that simply restricting the behavior of firms that join the exchange will not necessarily change the behavior of that firm's employees, except to the extent that investors/owners are able to create long-term incentives.