[yetanotherphd]

If the stock market refused to acknowledge the value of long term investment, then all stocks would have the same book-to-market ratio.

However, investors and CEOs will rarely see eye-to-eye on the correct level of company growth, since CEOs by their nature tend to want to increase the size and scope of their company. Investors know that only some companies will benefit from this increase in size and scope, and others need to be kept focused on their core business.

However a key point that is often missed is that there is very little that shareholders can do to force CEOs to do their bidding. In spite of a lot of talk about activist shareholders, the only real discipline that management face is the thread of being bought out.

[tsotha]

>However a key point that is often missed is that there is very little that shareholders can do to force CEOs to do their bidding. In spite of a lot of talk about activist shareholders, the only real discipline that management face is the thread of being bought out.

Eh? Shareholders elect the board, and the CEO serves at the pleasure of the board. The shareholders can absolutely do something to force the CEO to do their bidding - they can fire him. It happens all the time.

[yetanotherphd]

Yes, it does indeed happen occasionally. However, such actions are relatively rare, hence the term "wall street walk" for large block holders selling their shares when they are unhappy with management, rather than trying to influence them.

[pmarca]

That's a very idealized view. The reality is harsher. Public CEOs are under enormous pressure from many fronts.