The Long-Term Stock Exchange Opens for Business

https://blog.ltse.com/the-long-term-stock-exchange-opens-for-business-38b13f51e87b

by ummonk • 6 years ago

896 530 6 years ago

blog.ltse.com

davedx• 6 years ago

Is Warren Buffet involved, I wonder? I’m reading “The Intelligent Investor” at the moment, and it seems to me the principles of defensive investing would align closely with this new exchange.

person_of_color• 6 years ago

Is this book outdated?

picodguyo• 6 years ago

"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.

nicoburns4• 6 years ago

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.

pbhjpbhj3• 6 years ago

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

ethbr02• 6 years ago

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.

JackFr4• 6 years ago

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.

DennisP• 6 years ago

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

AznHisoka3• 6 years ago

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 :)

pavlov• 6 years ago

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?

cat199• 6 years ago

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?

JackFr4• 6 years ago

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.

SamBam• 6 years ago

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.

pmart123• 6 years ago

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.

m12k• 6 years ago

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.

tomhoward2• 6 years ago

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.

qeternity2• 6 years ago

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.

einpoklum• 6 years ago

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.

x87678r2• 6 years ago

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.

dcolkitt• 6 years ago

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.

gogopuppygogo• 6 years ago

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.

mistrial9• 6 years ago

"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

vikramkr• 6 years ago

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.

cma• 6 years ago

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.

sokoloff• 6 years ago

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).

QuesnayJr2• 6 years ago

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

rectang• 6 years ago

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.

sfard• 6 years ago

I read this article and skimmed the original and I'm still not sure what the exact details of this exchange are. No robo/quant investing? Minimum hold periods? No requirements for quarterly earnings? No penny stocks?

Maximus9000• 6 years ago

Me too. According to the wiki page:

Operating principles: In an earlier SEC filing, LTSE said that its corporate governance rules might include: increased voting rights for shareholders who hold company stock for long periods of time, restrictions on offering short-term incentives to executives, disclosure of impact of any stock buybacks, and requiring companies to have a board-level long-term product and strategy committee.

https://en.wikipedia.org/wiki/Long-Term_Stock_Exchange

imagin8or3• 6 years ago

So you make a fund which holds the stock of the listed company long-term, and trade the fund as normal... this doesn't seem robust yet.

imagin8or3• 6 years ago

Agreed. I suspect that it's more like "The Stock Exchange For LongTerm(TM) Certified Companies", so more like the requirement that exchange-listed companies are at least 70% public.

Presumably that could mean requirements on board memberships, dividend levels, types of employment perhaps? I find it a bit hard to see what stipulations they would have that aren't just good governance.

bob332123• 6 years ago

It looks like a SaaS analytics platform. Maybe they will have different data than normal Quarterly reports coming in from companies who want to be part of the exchange.

jansan• 6 years ago

Porsche SE was banned from certain stock indexes because they refused to publish quarterly reports. They claimed that too frequent reporting is not beneficial for companies. You can purchase Porsche SE stocks, but they are not listed in the DAX, which is the largest German stock index.

jovial_cavalier3• 6 years ago

There is no difference in incentives on the market itself. They just make the companies which are traded on their platform sign an agreement before they are allowed to be traded.

I think in practice this means that no one will use this exchange...

bo1024• 6 years ago

Same here. I was looking all over the site for "the idea" or the differentiator ... couldn't find it.

I think most of the approaches you mentioned wouldn't hold up for a large stock exchange because some off-platform trading site would spring up to fill the gaps. For example, you have a minimum holding period, but off-platform you can "sell" your shares at the current market price, then transfer them for free once the holding period ends. Or something.

I think you have to change the way the shares themselves work somehow (or how dividends work, etc). I'm not sure, seems like a hard problem.

SketchySeaBeast• 6 years ago

So how do we monetize this? I see the idea is the long term goal of sustainability, but how does one get their money out at the end? I wouldn't have these expectations for most of these initiatives, except for the use of "stock exchange", so I expect there to be some reason to exchange stock. Call it "the green list" or something if there's no money to be had, and that's totally fine, but the name doesn't match the goal.

MrPowers2• 6 years ago

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.

jl27183• 6 years ago

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.

owens99• 6 years ago

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.

canada_dry• 6 years ago

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

wombat-man• 6 years ago

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.

pdq• 6 years ago

I’m still trying to understand the rationale. They should create a comparison against the current public markets to highlight the differences.

Based on the “long term”, I’m guessing the core concept is no quarterly reporting, so companies can focus on long term initiatives.

However, how do they explain Amazon, who reinvested what would be their profits for over a decade, to continue expanding their business and build the massive Walmart juggernaut? All Bezos had to do was describe the strategy to the market, expand quarterly sales, and many investors were patient over the years.

aesh2Xa1• 6 years ago

Amazon is a great counter example and I don't have an argument that says Amazon does focus on short term at all, and certainly not to its detriment.

However, an exception to the rule is not the rule.

omega3• 6 years ago

Sounds like something designed to impair price discovery and efficient allocation of capital. Ultimately this will rise the cost of capital for the companies listed there.

x87678r2• 6 years ago

The only way I think investors could invest more in companies with a long term view is better margining so you could borrow money to invest in companies without getting margin called. Eg you can buy a house with 5% down, but you can't do this with stocks because normal volatility means you'll likely be wiped out.

jl27183• 6 years ago

I suppose this is possible if it was an amortized loan against personal liability like a mortgage. Clearly there is more volatility in the asset, so the risk would have to come down by insurance. I think it would get quite expensive to service these loans.

eru8• 6 years ago

You can buy (and sell) options to limit the impact of that volatility.

But I'm not sure why you would want to encourage margining when you are against volatility? The capital for the margin loan has to come from somewhere too.

So instead of person A putting up 5$ and borrowing 95$ to own 100$ in stock, and person B lending those 95$; it might be better for volatility for person A to own 5$ in stock and B to own 95$ in stock?

I am not sure.

For full disclosure: my investment strategy involves margining.

(Btw, I do think that 5% equity on houses is bad. It's mostly a function of land prices going up so much.)

alpineidyll3• 6 years ago

The density of unsubstantiated platitudes in the marketing for this is high even for silicon valley. There's a good evolutionary reason human beings focus on short term thinking. We have no demonstrable ability to forecast into the distant future!

Corporate governance is eff'd, and does promote short-term shenanigans, but technology that enables shareholder governance is the solution. Not just avoiding the price discovery process.

gkilmain• 6 years ago

We have no demonstrable ability to forecast into the distant future!

Well I woke up this morning and got myself a beer!

lordnacho• 6 years ago

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.

toufka2• 6 years ago

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).

james412• 6 years ago

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

BiteCode_dev4• 6 years ago

Genuine question, what good does the ability to buy and sell stock on the short term do for humanity ? Does it have any specific vertue appart from allowing one to make make money by betting correctly ? Why are not all sales required to be long term ?

danimal88• 6 years ago

Not a strong conviction from me but I can see a case for liquidity when you can sell quickly.

BiteCode_dev4• 6 years ago

I'm not talking about the times it take for selling as much as the absence of delay between buying and selling.

janhenr2• 6 years ago

The fact that stocks can be bought and sold quickly has a use, namely that the price should signal how the market values this asset.

BiteCode_dev4• 6 years ago

But what good does it do to have such a instant information on speculative value outside of the world of making money with it ?

LatteLazy2• 6 years ago

It prevents capital being mis-allocated.

It turns out that is one of the most important things to do in modern, capital intensive, economies.

It also means people can invest for shorter periods and that means more capital is available for investment. This has a double bonus where it reduces the risk of investments again making more capital available...

BiteCode_dev4• 6 years ago

I don't have the background to understand your answer, can you make it simpler with some examples ?

pbhjpbhj3• 6 years ago

It seems just to soak away capital to third parties and not prevent misallocation any more than longer-term trading would?

Compare football (ie soccer) trading windows. Player performance within a match might be like daily performance of a company.

eru8• 6 years ago

Every buy is a sale, and every sale is a buy.

I am a long term investor. Long term investors like me still need to buy or sell stock occasionally, even if only to live out their retirement eventually.

There's no good reason to assume that for every long term who wants to buy or sell on a particular date, there will be another long term investor on the other side of the deal.

So a special kind of short term investor, called a market maker, jumps in. Market makers typically hold a small amount of inventory and offer to buy or sell stock.

Market makers allow your grandma to sell stock any day of the week without worrying too much about timing.

See https://en.wikipedia.org/wiki/Market_maker

There are other kinds of short term holders of shares. But market makers are probably the most obviously useful to long term investors.

erfgh• 6 years ago

If there was no short term market then long term buyers and sellers would have a harder time buying and selling and it would cost them significantly more.

zbruhnke2• 6 years ago

So excited to see this vision come together Eric. I honestly hope one day we're taking HMBradley public on the LTSE. I have never felt more aligned with a mission or a vision, Systematically allowing companies to take a long term view without being punished is what the market needs.

Or put another way ... Adam Smith > Milton Friedman

I cannot wait to see where this goes and the mechanics LTSE puts in place to help reward long term thinking and long term holders

eries94• 6 years ago

Thank you!

itsoktocry2• 6 years ago

Systematically allowing companies to take a long term view without being punished is what the market needs.

Why is the default that companies are "punished" for long-term thinking?

I'd bet that there are far more cases of long-term investors "punished" in the public markets by short-term thinking executives than vice versa.

zbruhnke2• 6 years ago

The simplest answer to this is regularly tying executive compensation to short term stock performance ... it leads to more Jack Welch's and less Jeff Bezos' ... Ballmer is another prominent example, Microsoft all but died under him while his key metric was stock price, that's not a win in my book

spurdoman77• 6 years ago

Not any technical details. Doesnt make sense. Short time speculators are not an enemy for long time investors. Also, doesnt make sense to enforce long-term view on exchange level.

booleandilemma• 6 years ago

The objective was to create a public market designed for trading the stocks of companies organized to sustain long-term thinking

How are they defining long-term thinking? Is Walmart thinking long-term? Is Uber?

yayr• 6 years ago

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

awinter-py• 6 years ago

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.

sbilstein2• 6 years ago

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.

rayshan2• 6 years ago

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...

lr• 6 years ago

Just throwing this out there... Why not a simple rule to require all shares to be held for at least 24 hours before selling? It would certainly change the game in every way imaginable.

kumarvvr• 6 years ago

Hundreds of companies will lose revenue from commissions / fees of transactions.

codeulike• 6 years ago

It would but powerful vested interests would probably fight it tooth and nail. See https://en.wikipedia.org/wiki/Tobin_tax

eru8• 6 years ago

Not just powerful vested interests. Anyone who knows anything about economics knows that transaction taxes are bad for efficiency etc.

Tax wealth for all I care. But don't tax transactions.

(Btw taxing transactions would actually make financial speculation more profitable. Because bid/ask spreads would become wider and prices more volatile.)

JumpCrisscross3• 6 years ago

powerful vested interests would probably fight it tooth and nail

Minimum holds are very different from trade taxes. (The latter is stupid for a variety of reasons.) Minimum holds would make market making more profitable.

eru8• 6 years ago

What do you want to accomplish here?

Market makers are good for widows and orphans. You don't want your grandma to have to be careful with the day of the week or time of the day when she sells her stocks.

See https://en.wikipedia.org/wiki/Market_maker

smabie7• 6 years ago

No one would provide liquidity, the risk would be too high. And if they did, the bid-ask spreads would be as wide as the grand canyon.

m1117• 6 years ago

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?

asaph• 6 years ago

How do I create an LTSE account and start investing? I went to https://ltse.com/, clicked on the menu and selected "Exchange". But I only see marketing material.

Update: I found the Sign In/Sign Up URL: https://account.ltse.com/

spelunker• 6 years ago

You'll probably need to go through a broker - you don't buy directly from the other exchanges like NASDAQ either. If/when any brokers are on board I'm sure LTSE will be sharing that information.

superqd3• 6 years ago

Hmmm, a bit disappointed after reading their blog and site. I expected that they'd integrated some clever rules around stock trading itself in order to force, or encourage, long term thinking. I expected something along the lines of, "no shorting allowed", "stocks must be held a minimum of 6 months", etc. There was nothing like that, all they have is the rule, "come on guys, think long term".

I fail to see how this will have any meaningful effect on "long term vision", if they still allow your stock price to be dumped at the first sign of trouble, or allow people to bet against your company when some irrelevant bad news hits, or no one else sees value when you decide to deepen your spend on R&D for some long term plan. If people freak out, or think they can profit off of your lack of current obvious value, the you are still going to have short term fluctuations that you will feel pressured to address.

The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors. Shareholders are not gonna understand your vision every time you decide to engage in a long term strategic shift in priorities, so they will react when they find out, and that reaction can swiftly damage a company's value. If shareholders can still trade over short-terms, then you will still have large scale short-term fluctuations that CEOs will be forced to address, as more and more potential buyers will be influenced by the low price of a stock caused by other skittish short-term thinking investors.

The problem is with investors in stocks, not with the companies unwillingness to think long term. To make such an exchange work, you have to have clever trading rules in place to force longer term thinking.

eru8• 6 years ago

I expected something along the lines of, "no shorting allowed", [...]

That would at least be an attempt. Though to be honest, (other people doing the) shorting is actually very good for the long term shareholder.

The problem with short term thinking isn't from companies or company leadership, they are reacting to the natural short term fluctuations in their value because of the short term thinking of investors.

It's not that investors are short-termist. Far from it. See eg how shareholders react to Amazon or Tesla.

The problem is the principle-agent conflict: shareholders in general have a very hard time monitoring management. It is neigh impossible to tell a manager with a grand vision that will pay off in 20 years from a manager who burns capital on harebrained schemes for 20 years. Especially impossible to tell before those 20 years are up.

That's why investors are so keen on early and hard to fake signals. Returning cold hard cash to investors is one of those signals.

cactus2093• 6 years ago

Why is shorting not consistent with long-term thinking? You can think a company or industry will decline over a long-term horizon, just as much as you can think it will grow. It seems like the symmetry of being able to be either short or long on a company is a useful part of the market signal.

I'm also not sure "hold for 6 months" is particularly useful. A lot of people are already investing on that timeline today and it hasn't solved the problem. Also, there are enough investors on aggregate that there would still be a lot of buy/sell activity every day even with that model.

Something that might be kind of interesting is if there were a short trading window every ~5 years or something. Then nobody is trading at all for years, the company can focus completely on the long-term vision and only have to check in and worry about the public perception of the work for a short period of time every few years.

superqd3• 6 years ago

Apologies, shorting-bans isn't necessarily a long-term view rule, just an example of something they could do around constraints on trading, not necessarily something they should do, just I expected some kind of trading rules to fix the real problem, which in my opinion is investor pressure, not management short-sightedness.

The rules I suggested aren't necessarily good rules, just random examples. That is, to me the most powerful driver for short term thinking isn't managerial in nature, it's investor in nature. That is, it's the short term fluctuations in market value as investor reactions to events or goals that have nothing to do with the company's bottom line or long term goals, etc. But if essentially random forces are affecting the value of your company, there will exist pressure on management to respond to that pressure. So to me the real fix is some set of rules constraining investor behavior with regards to how the stock is traded, not some nebulous honor-code among CEOs. I am not sure what the rules should be, I just picked random rules out of my butt. But I think there should be some trading constraints: if you truly want to incentivize long term vision, you have to remove the short term pressures.

Like your suggestion for a trading window every 5 years. I have no idea how well that would work, but it seems reasonable, and is the sort of thing I expected for the site, but they seem not to have anything like that in mind. Which to me means that have entirely missed the mark.

smabie7• 6 years ago

How does preventing shorting express a long-term view?

superqd3• 6 years ago

crazygringo2• 6 years ago

With all respect to Eric, I strongly believe the concept of forcing "long-term investment" is ultimately a scam.

At the end of the day, it's fundamentally a blank check for management to misbehave -- to misspend money, pursue pet projects rather than real business goals, and have nobody to tell them no.

There is nothing inherently short-term about the stock market -- this is a myth that keeps getting repeated but has zero substance. Short-term changes in supply and demand add changes to prices, but it's not like anything's 10x off of the value a company is expected to produce -- the net present value of future cash flows.

But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.

mcny• 6 years ago

But if you prevent people from selling, then you're preventing the market from holding a company accountable when its management messes up.

Is it even possible to hold management accountable for anything at all? Personally, I think executive compensation is the real culprit.

I've tried to think of ways to put a cap on compensation but I can't think of any way especially since the management of one company is on the board of another and they are all in it together. Also something I didn't know until recently: board members get paid! How is that not the dumbest thing in the world, I will never know... Personally, I think board members in public companies should get ZERO compensation, no travel allowance, no perks. They own stock, don't they? but I digress.

Is there a way to cap executive compensation to a multiplier of the lowest salary paid by the company? like 10x or 50x something? Like if the lowest pay is USD 15 per hour or USD 15 * 2000 = USD 30k then the highest executive compensation (including stock grants, bonuses etc) may not exceed USD 30k * 50 = USD 1.5M which isn't too bad.

Is it possible to codify something like this?

eru8• 6 years ago

Why would you want to put a cap on management compensation?

The comp for the highest level of management essentially comes out of the same pool of money as the returns to shareholders. If shareholders want to pay the CEO lots of money, let them. It's their money.

Especially, C-level executive's pay doesn't really come out of the same pot of money as low level employees' pay. The pay for cashiers at Walmart is more dependent on what Target or McDonald's pay their cashiers than on how much money the CEOs make.

Thanks to outsourcing jobs to third parties capping exec pay at some multiple of lowest employee pay doesn't make much sense. Many companies don't directly employ their security guards for example, but pay a third party company.

As for board members: they should be compensated however much they can negotiate for.

If I were to own a company, I would have opinions on how much the board members should be compensated. But who am I to tell other people how much to pay for services?

And I don't think all board members necessarily own significant amount of shares. See also https://en.wikipedia.org/wiki/Independent_director

In any case, I don't really understand how capping compensation would help hold management to account? I can see an argument for how management should mostly be paid in eg stock, so that their incentives are aligned properly. But I don't think that's what you wanted to get at?

crazygringo2• 6 years ago

Is it even possible to hold management accountable for anything at all?

Of course, it's the way things work now. And it has nothing to do with compensation.

Employees are held accountable by management, and are fired when underperforming.

Management is held accountable by the board -- and is similarly fired when underperforming. CEO's are let go all the time.

And the board is held accountable to shareholders -- as owners change or demand new policies, board composition changes accordingly.

Of course if the CEO/founder owns more than 50% of voting shares then the board is more advisory than anything else, but that's the exception -- and it's simply what you get from being the owner.

eries94• 6 years ago

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

fastball• 6 years ago

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

Do you prevent day-trading or something similar?

eries94• 6 years ago

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.

rglover• 6 years ago

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

jbob2000• 6 years ago

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.

maerF0x0• 6 years ago

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?

safog• 6 years ago

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).

bobcostas552• 6 years ago

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?

mc32• 6 years ago

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?

bmh100• 6 years ago

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

sbilstein2• 6 years ago

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

eries94• 6 years ago

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

Galanwe3• 6 years ago

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?

eries94• 6 years ago

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)

aisofteng3• 6 years ago

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).

gsumpster• 6 years ago

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!

eries94• 6 years ago

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

NicoJuicy2• 6 years ago

Add a 1 minute delay on every order and most automated trading would be gone.

eru8• 6 years ago

Why? If everyone has a 1 minute delay, you still benefit from being the fastest.

And shouldn't we celebrate the march of technology? In the grand scheme of things, trading is relatively boring. Let the computer do it.

qwertox2• 6 years ago

I'd prefer trading timeslots, like once every 10 minutes, with randomized execution order.

You put your orders in, they all get queued up and then the queue gets executed randomly.

That would force the traders to think in different terms, closer to the real value of the asset.

waynenilsen2• 6 years ago

What support will there be for high frequency trading? What is required for Direct Market Access? Will the realtime data feed be public? What is the fee schedule?

eries94• 6 years ago

- What support will there be for high frequency trading? LTSE's market is designed to create a level playing field for all market participants. We provide equal support across all of our members.

- What is required for Direct Market Access? A relationship with a member of LTSE who offers DMA.

- Will the realtime data feed be public? Yes, LTSE's market data can be accessed via the SIP's (Securities Information Processor) under the "L" quote.

- What is the fee schedule? Free/Free (Add/Remove)

waynenilsen2• 6 years ago

Regarding "a level playing field for all market participants" I don't believe that in an exchange that supports HFT there can be a truly level playing field. There are some technologies that can help mitigate the effects of HFT on the market. One is the approach that AZX [1] took where you do large and infrequent dual auctions. Another approach is to go with an Automated Market Maker (AMM) technology and eliminate the need for order books all together as has become popular recently in the cryptocurrency space. Some background research can be found here [2] but what really took off was Uniswap's innovative use of a "Constant Function Market Maker" [3]. This allows average individuals to provide liquidity while getting the benefits of what is normally only reserved for high frequency traders. I believe that an institutional grade AMM program would be greatly democratizing for the industry.

[1] https://en.wikipedia.org/wiki/Arizona_Stock_Exchange [2] http://reports-archive.adm.cs.cmu.edu/anon/2012/CMU-CS-12-12... [3] https://medium.com/bollinger-investment-group/constant-funct...

nend• 6 years ago

Are any companies currently applying to be listed?

eries94• 6 years ago

The listings process is highly regulated and any conversations of this type would be confidential, so I can’t answer this one

venantius• 6 years ago

What are your thoughts on listing foreign companies? Asking from the UK.

eries94• 6 years ago

LTSE should work fine for any company that wants to add a secondary listing to access US capital markets, so long as they otherwise meet the listing standards

dfabulich4• 6 years ago

It says you’re open for business. What business is now open? Can I buy a share of a company on LTSE today? Can I list a company on LTSE? (I can’t find a way to do either of those things on your website.)

eries94• 6 years ago

Yes, you can do both. Trades happen through stock brokers as with any other exchange. You can track the exchange’s daily trading volume here: https://markets.cboe.com/us/equities/market_share/

The listing application (and attendant legal docs) is here: https://longtermstockexchange.com/listings/documents/

powvans• 6 years ago

Is there a publicly available list of companies that are listed on the LTSE?

maximilianroos• 6 years ago

I can understand the effort to weigh firm's incentives towards longer-term incentives, and I can see how the suggested changes to companies' structure would achieve that.

But why do those changes need to be coupled to the exchange a company assigns as its primary listing venue?

eries94• 6 years ago

Companies can dual-list so LTSE does not need to be the primary venue

Stock exchanges have the obligation to set standards for the behavior of managers and investors. It’s this dual-stakeholder role that uniquely allows our reforms to take hold.

Believe me, I looked long and hard for an easier way to get this done

b200002• 6 years ago

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.

eries94• 6 years ago

Tell me about it...

Applejinx2• 6 years ago

Try Nick Hanauer.

smabie7• 6 years ago

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

b200002• 6 years ago

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".

xorcist• 6 years ago

Want to invest in stocks long term? Buy some stock in an unlisted company. Then you are stuck with them whether you like it or not.

Above only partly in jest. Modern crowdfunding-style stock platforms offers this to anybody, and while most startups fail, there are exceptions. The long term commitment required is a different experience.

biznickman• 6 years ago

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!

eries94• 6 years ago

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

silentsea90• 6 years ago

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.

eries94• 6 years ago

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

kenned3• 6 years ago

Amazing to see you here Eric.

Having worked in Equities most my life I love the idea you are putting forward here. We really need to stopthinking in terms of "next quarter" and structure our markets for the longer term.

Question for you : What are your thoughts on corporate buybacks on your exchange?

eries94• 6 years ago

I think buybacks have occasional legitimate uses, but there’s a reason that they were considered basically illegal not that long ago

I think if companies are sincere in their desire to use buybacks only for good purposes, they should commit to report “EPS net of buybacks”

dasudasu• 6 years ago

They do. The number of shares outstanding is publicly reported. You can already divide earnings any way you want yourself. To me shares buyback is just the counterpart to selling shares on the open market to raise capital. It’s anti-dilutive and can be in the interest of shareholders.

MrPowers2• 6 years ago

Aligning executive compensation with shareholder interests would also help. Stock options incentivize executives to buy back shares (boost the price, do a buy back, exercise options).

bostonsre• 6 years ago

Do you think fraudulent business practices would be able to hide more easily and for longer periods in the ltse exchange? I'm wondering if fewer large traders that focus on short term profits would mean less eyes would be focused on companies so that it would be easier to hide fraudulent activities.

al3xandre• 6 years ago

Shouldn’t this be an index fund with conditions to be included rather than a stock exchange ?

eries94• 6 years ago

Probably. I'd love it if someone would build this and get companies and investors to take it seriously.

RivieraKid• 6 years ago

The assumed problem is that investors of publicly traded companies pressure management to make suboptimal decisions, because they overfocus on short-term performance instead of maximizing the present value of all future cash-flows.

Looking at TSLA, AMZN, FB... I'm skeptical about this premise.

isaacn• 6 years ago

Is there an index fund where I can easily buy into all the companies in the LTSE?

eries94• 6 years ago

Not yet

xivzgrev• 6 years ago

I’m not sure how this works practically. Let’s say Apple wants to do this, and they list. Do they issue new shares of stock, and that dilutes their other shares? How is the price determined on this exchange? If there are no restrictions on trading, and Execs get stock on LTSE, Wouldnt market reactions to quarterly reports still move price around, incentivizing short term results?

CapriciousCptl• 6 years ago

Can/will LTSE restrict options trading?

d--b• 6 years ago

If they don't do options themselves, nothing prevents another exchange to list options on prices published by the ltse. So if the exchange is succesful, it's likely they will list options there too.

specialist2• 6 years ago

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.

eries94• 6 years ago

Thanks for the kind words

cdnpal3• 6 years ago

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?

giantg25• 6 years ago

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

centimeter3• 6 years ago

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?

mlyle• 6 years ago

"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.

munificent• 6 years ago

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.

SolarNet4• 6 years ago

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

specialist2• 6 years ago

"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...

samatman3• 6 years ago

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.

ryan_j_naughton• 6 years ago

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?

eries94• 6 years ago

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

JosephObell2• 6 years ago

What criteria is necessary for companies to be listed? Can we have you on our podcast for 10 minutes to talk about your exchange? We are a business podcast in Austin, Texas.

JosephObell2• 6 years ago

What criteria is necessary for companies to list on the exchange? Can we have you on our podcast for 10 minutes to talk about the exchange? We are called Moontower Business based in Austin, Texas

yalogin• 6 years ago

Isn't this solved by an app that only lets you buy and sell long term? I mean why do we need a new exchange for it?

Sorry, if that sounded harsh. I am not familiar with the business nuances around exchanges and so the question.

tempsy3• 6 years ago

The irony of launching now is that the Federal Reserve has created an environment with zero rates and endless cash that has made speculative stocks much more attractive in the traditional public markets. The stock market has become very forgiving if you can show top line growth regardless of whether you're profitable or not.

mguerville• 6 years ago

I assume companies will still need to be "priced" and then supply/demand will affect prices, do you intend to have any unique mechanisms to reduce volatility and short termism by investors or is the idea to be hands off and control the long term focus in "softer" ways?

eries94• 6 years ago

Yes we do, but there’s not really a good way to summarize our plans here. Suffice to say we are keenly aware of the need to reduce the aspect of volatility that is driven by speculators

dtrailin• 6 years ago

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.

an_opabinia• 6 years ago

It's pretty awesome.

Which was harder - building a stock exchange, or getting someone to read a whole book?

With the benefit of hindsight, which of the following would you say is the biggest predictor of growth in equities prices: everything else, greater buying, less selling, brand, liquidity, or previous prices?

eries94• 6 years ago

What makes you think I ever did the latter ;)

In all seriousness, there’s no comparison. A regulated national securities exchange is one of the harder kinds of startups you can attempt.

I’m pretty sure that over the long run equity prices are a mirror of the fundamental value creation that companies do by serving customers. The problem is that this can become distorted “longer than you can stay liquid” as the old saying goes

tempsy3• 6 years ago

what incentives do companies have to be "long term focused" in a market environment that has become highly frothy and speculative due to central bankers?

when investors will buy anything that whiffs of growth and executives can raise debt for cheap and raise secondaries easily no one on either side is exactly clamoring for a "long term" focused exchange right now.

eries94• 6 years ago

No one? At least a few people are clamoring for it, surely?

There are some investors and companies that tune out the noise and try to make lasting change, making a dent in the universe, that kind of thing. I think they could use financial infrastructure to support their ambitions. Seems pretty simple to me

tempsy3• 6 years ago

clearly you’re biased, but hard to imagine the actions of the Federal Reserve that has pumped liquidity into the economy and cut rates to 0 that many predict will last for 5+ years make an exchange that is focused on “long term” less interesting to both executives and investors.

we live in a market when there’s a dozen SPACs listed every week and a company like Nikola that doesn’t even have a functioning product has a valuation of $20B. liquidity and support from central bankers have naturally made investors more patient and willing to ignore short term road bumps.

billman• 6 years ago

Best of luck Eric. I can feel the ship turning.

eries94• 6 years ago

Thanks

jaesung• 6 years ago

I don't have any questions, I just wanted to mention that I think you're changing the world more than most people realize.

eries94• 6 years ago

Thank you! I don’t mind being misunderstood for long periods of time, that kind of goes with the territory. But still, it’s nice to get a shot in the arm every once in a while

zonethundery• 6 years ago

Opening a new exchange is a huge achievement. Congrats on making it over all of the regulatory (and other) hurdles!

I wish you the best of luck in attracting new listings; it's a fascinating idea.

NicoJuicy2• 6 years ago

Will there be a limitation on buying/selling to prevent automated traders?

( Or plans for this)

eries94• 6 years ago

No, that’s currently not legal in the US

We focus instead on finding ways to differentiate the experiences of the “tourist” speculators from the “citizen” long-term investors

Loughla4• 6 years ago

We focus instead on finding ways to differentiate the experiences of the “tourist” speculators from the “citizen” long-term investors

Can you expand on this?

lrobinovitch• 6 years ago

As we're seeing right in our face on the West Coast of the US right now, climate change is going to continue to get worse, affecting the globe at least as much as the pandemic and for much longer unless we take serious action now.

Does the LTSE structure support companies oriented towards developing rapid climate solutions that will pay off in the longer term, but not at the rate of typical venture investments? If this isn't a focus, why not?

eries94• 6 years ago

Yes. I don’t think any other platform is better suited to such companies

AndrewWarner• 6 years ago

What a bold move, Eric! What does a Minimum Viable Product for a stock exchange look like?

eries94• 6 years ago

You’re looking at it. MVP doesn’t mean “fast” in some absolute sense. It just means fast compared to the underlying cycle time of the relevant industry. I think we did pretty well with this one.

That said, there were many many many MVPs that you don’t see that informed the direction we are at now.

In some way our private company tools are also an MVP of sorts: https://ltse.com/tools/

Avalaxy• 6 years ago

How much time and money did you spend building the MVP? How did you validate it?

eries94• 6 years ago

We have raised on the order of $90M so far. It cost us almost $20M to get to the initial regulatory approval

I’ve answered about MVPs elsewhere in this thread but a big part of what made this possible is our superior cost structure due to being a software-native company

Validation I’ll have to answer a little later, once we make a little more progress

mazspork• 6 years ago

How often can you trade? Once a day (at the same time)? As you like?

eries94• 6 years ago

We are a RegNMS complaint exchange which means we don’t restrict trading or liquidity. We have found ways to make our reforms effective without having to go there

calvinmorrison• 6 years ago

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

eries94• 6 years ago

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

vertbhrtn• 6 years ago

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

dangerface2• 6 years ago

adopt corporate governance that aligns their behavior and incentives to the long term.

What does this mean? What quantitive measures are you using to qualify long term incentives and behaviours?

No offence but you don't seem to have an answer to this question.

For example is RDSA long term? They have been around for ever and people will need cars and oils for the forseable future at least 10 years is this long term? What happens when the oil runs out / global warming / move to electric cars is it still long term and how long will that term end?

I need qualitative facts and figures before investing.

I buy stocks that provide value to people in a way thats scaleable and I have fixed time periods for when I expect investments to return like 5 years or 10 years.

When some one can't talk about the value their service provides and use loose terms like "long term" how long is long? This is an easy pass for me.

eries94• 6 years ago

Leaving aside some of your odd claims, I’m happy to answer the question. Our definitions and standards are laid out in excruciating detail in our hundreds of pages of legal filings. Here’s a good place to start if you are interested: https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf

Also this may be of some interest:

https://longtermstockexchange.com/static/principals_for_lt_s...

rytill2• 6 years ago

You don’t have any key ideas that you can express without linking to “hundreds of pages of legal filings”? His claims are not odd at all, you really haven’t put any effort into distilling the incentive design.

It’s not impossible to express complex incentive design or push readers in the right direction to understand this. What is the essence of what is quantitatively or contractually different about LTSE?

edoceo• 6 years ago

The second link, shows this on the second page

""Long-term focused companies should measure success in years and decades and prioritize long-term decision-making""

So, maybe the short answer is that? And the longer answer is 28 pages laying out details.

dangerface2• 6 years ago

The principals for it success white paper was what I was looking for, thank you.

dfscarter1• 6 years ago

When will you see the first companies list and how do I invest in these companies

GuB-42• 6 years ago

I'm wondering if "stability warrants" could help promoting long term goals over runaway speculation.

This is a financial product available on the CAC40 index which pays off if the index value stays within a certain range.

eries94• 6 years ago

Curious to learn more about how this might work

elamje• 6 years ago

Eric, what are some companies you’d be happy to list on your exchange? Both IPO and older companies already listed elsewhere.

shireboy• 6 years ago

How can an average investor buy stocks on this exchange? Will they be available in regular stock brokerages?

eries94• 6 years ago

Yes, all of our listed securities will be available in regular brokerages. If your current broker allows it, you can even ask them to direct trades to LTSE as opposed to another exchange. Although most retail brokerages do not allow customers do specify this, a few do.

mabbo• 6 years ago

Do you think you'll see something like "ethical index funds" that index your exchange, and sell themselves to customers based on the rules of your exchange?

And if so, when can I buy in?

eries94• 6 years ago

Yes, I hope so. I think if and when that happens, it'll be pretty big news. I don't think you'll miss it.

(But I guess you could subscribe to our newsletter in the meantime... https://ltse.com at the bottom of the page)

dakial12• 6 years ago

What is your view on the whole Derivatives issue? Because they seem to be very problematic as it seems that a small part of it is really used for useful business objectives (like hedging) but the vast majority of them is used as plain, bubble generating, gambling in the markets (as the subprime chaos in 2008). Will LTSE address this issue in any way?

eries94• 6 years ago

Yes, but I don't have anything to announce at this time.

dakial12• 6 years ago

Good. Now I'm curious.

qwertox2• 6 years ago

Wow, it sure was pretty hard to find the street address, and this was in a context which makes it look like you were legally forced to publish it. Don't you want people to know where you're located at?

baccredited• 6 years ago

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?

eries94• 6 years ago

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.

webmaven• 6 years ago

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

libraryatnight• 6 years ago

This feels... not open. Click around the site, can't find anything useful just manifestos and principles. I really hate when startups do this. You're not "open for business" you're open to being in business. If you tell me you've started an exchange, you're open when there's listings and people can trade.

eries94• 6 years ago

Good point: https://markets.cboe.com/us/equities/market_share/

newbie7894• 6 years ago

I am kind of confused. Does this site have a list of the actual listings? Maybe I'm not navigating this cboe site correctly but that just looks like some numbers.

Edit: For example if I wanted to invest in a business through LTSE today, is cboe how I would do so? What would my order flow look like?

peterthehacker• 6 years ago

Congrats! I agree that this is a very important problem to solve. Can you elaborate on some of the specifics of how LTSE will incentive investors to think long-term?

I’m imagining some strict trading frequency limits. Like an inventor can only trade a specific stock once a year. Do I have the right idea?

eries94• 6 years ago

No, what you are describing is not currently legal in the US. We have to allow the stocks listed on LTSE to trade freely across the entire "National Market System" which includes dark pools and incumbent legacy exchanges.

So in order to solve this problem we have to start with corporate governance. Remember, though, that shares of stock are not actually commodities. They are contracts and the rights and responsibilities of stockholding emanate from the corporate charter. So as we are able to encode protections and requirements there, they will follow the stock wherever it trades.

Through this mechanism, much reform is possible both today and in the future.

minimax• 6 years ago

Why did you feel the need to support trading of non-LTSE listed names on the LTSE? Are there novel order types or other trading mechanics coming down the pipe?

eries94• 6 years ago

Just the opposite, we adopted a set of rules that we call the Very Simple Market (tm) (yes really). We have reduced the types of orders and removed all hidden liquidity. This isn't the best trading venue for all kinds of traders, but we do believe it is superior for certain investors who have a long-term orientation.

mcculley• 6 years ago

How is "long term" defined? The website talks about decades but does not make that clear.

Isn't every investment ultimately measured against a 30 year U.S. Treasury bond? Will the LTSE incentivize longer term investments?

jovial_cavalier3• 6 years ago

Are there any incentive systems in place to ensure that companies being traded on your exchange don't take part in these destructive practices, or is it simply that they agreed to your policies?

If it's the latter, I don't see why a company would opt to be traded on your exchange if they get literally nothing in return other than good boy points.

I also don't understand why this is a problem you are tackling at the exchange level if you aren't changing how the exchange works.

eries94• 6 years ago

Yes, there are incentives. But I object to your characterization of doing the right thing as "good boy points." Acting ethically and treating people right is its own reward _and also_ has been repeatedly shown to lead to outperformance.

Our exchange works differently than the legacy players, so I don't really understand your last point.

ajani• 6 years ago

The question still holds, which you didn’t really answer:

Are there any incentive systems in place to ensure that companies being traded on your exchange don't take part in these destructive practices, or is it simply that they agreed to your policies?

What are the incentives and how do you hold a company to a long term orientation. A company is free to choose and change its vision/strategy as time goes by. Do they get delisted if they move away from this orientation. How do you measure such an intangible and act on it?

jovial_cavalier3• 6 years ago

Acting ethically and treating people right is its own reward _and also_ has been repeatedly shown to lead to outperformance.

If that's the case, then what does your exchange add? I think we are in agreement about these principles, but I don't understand how your exchange is encouraging them.

Better than just encouraging people to agree to these practices is if you could set up a competitive landscape where they are more directly rewarded than in the current paradigm. That is primarily how I see an alternative exchange contributing to this cause.

Our exchange works differently than the legacy players, so I don't really understand your last point.

This is the central contention. I don't understand how you are different from legacy players. What is the actual concrete difference in how you operate as an exchange that differs from your competitors? Furthermore, how do you expect that to lead to less short-term rent seeking?

dfabulich4• 6 years ago

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

joshdance• 6 years ago

Same question. How do I buy a share?

eries94• 6 years ago

Ask your broker. They are probably a member already.

eries94• 6 years ago

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.

dfabulich4• 6 years ago

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?

aninditaghosh2• 6 years ago

Great initiative! how do you plan to attract buyers and sellers to create a meaningful and transparent exchange.

aninditaghosh2• 6 years ago

Great Initiative ! How do you plan to attract buyers and sellers for transparent exchange?

mikorym• 6 years ago

The objective was to create a public market designed for trading the stocks of companies organized to sustain long-term thinking.

I'm sorry, but this doesn't seem to be clear at all to me.

Take the subset of investors that don't trade daily, or monthly, or, even yearly. There you have your long-term thinkers. And it's a large subset, make no mistake.

Also, LTSE? That's suspiciously close to LSE. I'm not being a detractor here, just asking the obvious.

mmhsieh• 6 years ago

how do you handle M&As when companies are absorbed by other companies that don't live by the charter? grace period, or are they just dropped?

eries94• 6 years ago

Same as any other exchange. The new entity will either have to meet the listing standards or be de-listed.

nartz• 6 years ago

Just an idea - put a link to longtermstockexchange.com into your blog post, preferably at the top, with how people can use or buy into it

daniel-levin• 6 years ago

Hi Eric, presumably the companies will trade on a limit order book, like other exchanges. This mechanism of price formation allows rapid price movements up or down. What’s to stop the speculators or retail investor hordes from piling into a stock and driving its price up or down? Are there holding period rules?

eries94• 6 years ago

No, we do not restrict liquidity in any way. We simply believe that companies should be able to engage with "speculators" as you call them differently from long-term investors. Ultimately volatility isn't a problem in itself - it's the effect it has on corporate decision-making that matters.

someelephant• 6 years ago

If you want long term thinking, pay packages for executives should take that into account. This can be done regardless of exchange.

eries94• 6 years ago

Agreed. our standards require this

Animats• 6 years ago

Oh, it's mostly a statement of principles to which a company can sign up. More like a "public benefit corporation". Are these binding? How are they enforced?

I was expecting some kind of exchange designed for lower volatility. There have been exchanges proposed where prices only change once a minute, or something like that, to stop high frequency trading. But this isn't one of them. Warren Buffett has proposed that any capital gain over a period less than a year be taxed at 100%, to force a buy and hold strategy. Not seeing any of that here.

JumpCrisscross3• 6 years ago

Warren Buffett has proposed that any capital gain over a period less than a year be taxed at 100%, to force a buy and hold strategy

Well yes, anyone with ample liquidity would love this. Anyone needing short-term liquidity would be price indifferent between their acquisition price and the market price. Liquidity providers would make bank.

eries94• 6 years ago

There are many ways to address volatility, and - more importantly - the corporate dysfunctions that volatility can enable. We are working on research that will show that the reforms we advocate with are linked to lower volatility.

In terms of the principles, we advocate for principle-based listing standards which are indeed binding and enforceable. The details are enumerated in our public filings with the SEC and on our website.

mail2vks• 6 years ago

There were a few transactions which got completed today. Who is buying and What are they buying ?

Source : https://markets.cboe.com/us/equities/market_statistics/venue...

polskibus• 6 years ago

Please compare LTSE to IEX, why is LTSE better?

11thEarlOfMar• 6 years ago

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?

eries94• 6 years ago

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.

Applejinx2• 6 years ago

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.

itsoktocry2• 6 years ago

This seems like a wonderful idea that the world needs. But until I can see a list of companies that are "accepted", it's hard to know if it's all just lip service. There are a few companies in the tech sphere I can think of off the top of my head that many consider "long term thinkers" that others would consider nothing of the sort.

eries94• 6 years ago

I'm as curious as you are to see what happens next...

aisofteng3• 6 years ago

I think IBM is one.

coderintherye• 6 years ago

Confused? I'd highly suggest listening to the talk by Eric on this LTSE: https://www.youtube.com/watch?v=BvaAYpP691Y

And congrats Eric on getting to this point, I know it's been a long road!

eries94• 6 years ago

Thank you!

hitpointdrew• 6 years ago

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.

eries94• 6 years ago

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/

Bedon2922• 6 years ago

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?

mmahemoff• 6 years ago

Is there a path for investors from outside the US?

adjkant• 6 years ago

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?

hansmalone• 6 years ago

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.

hammock2• 6 years ago

@eries Isn't this a raw deal for executives and potential executives of listed companies? It introduces new corporate governance rules (no short-term incentives, buybacks, etc) without alleviating the existing regulatory burden of quarterly filings, GAAP, etc.

eries94• 6 years ago

if a company's executives feel like gaining outperformance by doing extra work isn't a good deal, maybe don't invest in that company? I'm not an expert, but I do play one on TV sometimes

hammock2• 6 years ago

Fixed the typos. Yeah that's kind of my point. You are going to have less interest from investors - but not only that you will have less interest from boards or executives. What's the advantage of being listed on the LTSE, if all I get are more rules? It's a neat option for investors, but there's two sides to every market. What does it offer that a long-term-conscious board couldn't implement themselves?

I can't say "I'm starting a food truck which will sell popsicles that don't melt even in the face of great heat. Sure the suppliers have to put in a little extra work to make sure they don't melt, but you as a buyer will benefit" - that doesn't really work unless there is a path for those popsicles to be created and offered for sale in a way that makes sense for the supplier.

natcombs2• 6 years ago

Congrats Eric! I've been excited about this since your original announcement.

I'm hoping that you'll offer an index fund to make it for passive investors (and dollar cost averaging) to put more money in this exchange, with less effort, and push the wall street incentives toward longer term.

eries94• 6 years ago

good idea

obi-wan• 6 years ago

How did you decide on your first early hires and how did you convince them ?

studpeace• 6 years ago

If you're starting I think you should read the lean startup

cwkoss• 6 years ago

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?

eries94• 6 years ago

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.

om25• 6 years ago

What protections do you provide for companies?

TheMagicHorsey• 6 years ago

If you have a long term view on business, you can actually just use the existing stock exchanges. The stock exchanges aren't the reason for short term thinking ... the incentives of executives and investors are the reason for that.

There's plenty of companies that take the long view and whose investors have been rewarded for it ... Amazon, Netflix, Tesla, etc. ... its not like the existing stock exchanges and investors have stopped them from running a loss and investing in the long term.

I feel this is a solution that isn't aimed at the right part of the "stack". Reform is needed in the way the professional management of large public funds and pension funds are evaluated and compensated ... but you won't solve that with a new stock exchange.

vardan_k3• 6 years ago

My understanding is that the market cap of a company listed at LTSE will be far less than of the same company listed at NYSE or NASDAQ since there will not be a as much interest by both many institutional and retail investors. Is my understanding correct?

eries94• 6 years ago

Definitely not

maxk42• 6 years ago

You can't just say "Definitely not" and leave it at that. You have to explain why or you come off as a huckster.

vardan_k3• 6 years ago

Would you please elaborate. Because I think that if the investor is discouraged to be flexible about its positions it will not be encouraged to invest in that particular business.

vardan_k3• 6 years ago

To me the whole concept of LTSE feels like this. The listed companies say to the investors "we want your money, but you know what you should just seat tight". I don't think that's gonna work. But whatever, I'm just a lawyer :D

unemphysbro• 6 years ago

I always thought that the LTSE would be an excellent crypto/ICO use-case.

singwhenurdown• 6 years ago

I haven't read every comment here but is this a direct repeal to the common business logic: "do what increases the shareholder's profits"?. i.e. moving business focus away from pure profit and onto values that benefit the greater good (environmentalism, diversity, etc.)

jbhatab• 6 years ago

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)

eries94• 6 years ago

thank you!

ricardobeat• 6 years ago

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.

eries94• 6 years ago

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

BigPictures• 6 years ago

Like many people here, I’ve been wondering for a long time how they are planning on keeping companies focussed on the long term. Here is a summary that is shorter than the SEC filings.

https://longtermstockexchange.com/listings

xwdv• 6 years ago

Will the long term stock exchange feature any kind of derivatives?

jimbob45• 6 years ago

Small brain: Link your site, get DDOS’d

Big brain: Link your blog explaining your site, main site is unaffected by DDOS

Galaxy brain: Link your blog explaining your site hosted by a 3rd party. No DDOS.

Nice work, everyone.

hevelvarik• 6 years ago

Great, creating an equity exchange is a heavy endeavor and I’ve seen no more than a couple of medium posts which speak only to the problem but nothing towards your solution. I’m definitely missing something; where’s the beef? Is there something of your solution that we can read?

eries94• 6 years ago

Sure. All of the details are available in public filings and on our website. You might start here: https://longtermstockexchange.com/listings

or here: https://longtermstockexchange.com/static/principals_for_lt_s...

or here: https://www.sec.gov/rules/sro/ltse/2019/34-86327.pdf

vinayp10• 6 years ago

How is this different to equitybee.com or carat.com?

yellowbanana2• 6 years ago

What are the benefits for a company to list here?

What are the current examples of company that exists now that fit that ideal long-term vision?

technocratius• 6 years ago

I expect they'll find capital from investors/shareholders there that will be less activistic in periods of short-lasting economic underperformance

yellowbanana2• 6 years ago

Are they going to limit the volum of the transactions, or it's trusting the investors.

It would be better if they gave more details on it.

leptoniscool• 6 years ago

It can be argued that long-term thinking is already part of the current market structure, for example take Amazon or Tesla which trades at extraordinary PE ratios. In essence investors are betting in the far future these companies will make money. How does the long term stock exchange differ?

nthnclrk• 6 years ago

I’m clearly not Eric, but you’ve only addressed the investor side here.

Looks to me LTSE is trying to create a forcing function, primarily through governance, for companies to think and act long-term.

rayshan2• 6 years ago

How would companies live up to the long-term expectations? Who's holding them accountable? What's the investor's discovery mechanism for more long-term oriented companies? These are some of the things we think about.

jyz• 6 years ago

@eries any plans/timeline to list LTSE on LTSE? Also any additional thoughts on the index fund proposal described by a few here: would you want to include existing public companies or only completely brand new LTSE listed companies?

Thanks

matthewfelgate• 6 years ago

Not all good ideas make good businesses.

haeli05• 6 years ago

What are the listing fees and procedures? Are you similarly regulated to NYSE? Can smaller startups and Reg D List?

eries94• 6 years ago

Yes, similar to NYSE and NASDAQ. All of our exchange fees are regulated: https://www.sec.gov/rules/sro/ltse.htm

helan2• 6 years ago

Are you explicitly banning traders from trading? For example requiring you have to wait x months from purchase date before you can sell your shares.

eries94• 6 years ago

No, that's not legal under US law at this time

smabie7• 6 years ago

That's a really bad idea. If that was a rule, there would be no liquidity at all as no market maker would touch it. Also shorting would become too risky.

helan2• 6 years ago

How can you enforce long term holding without explicitly banning shareholders from selling within an x month period of purchase date? I think it should be a law that you have to wait like 6 months before you can sell a stock... that would eliminate ALL traders and craziness in the markets.

Invictus0• 6 years ago

I want to support this but man is this a botched launch. If your blogpost is so low on details that you have to spend hours answering the same questions over and over in the comments, then maybe you should write a better blog post. It feels like I've just visited a "we are under construction" website; I still have no idea what this is or what it does or what I'm supposed to do.

ryanjodonnell• 6 years ago

What's the smallest a company can be to consider being listed on LTSE?

om25• 6 years ago

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?

lappa3• 6 years ago

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?

valuearb5• 6 years ago

< 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.

om25• 6 years ago

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(.

om25• 6 years ago

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?

woshea901• 6 years ago

When will the LTSE be open for investors to buy shares? Will focus be on institutional investors or retail?

bricemo• 6 years ago

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?

AmericanChopper• 6 years ago

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.

unityByFreedom2• 6 years ago

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.

lostcolony2• 6 years ago

'- 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.

laughinghan3• 6 years ago

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?

cmroanirgo• 6 years ago

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.

joshu2• 6 years ago

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...

megameter• 6 years ago

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"?

fluffything2• 6 years ago

& 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.

imagin8or3• 6 years ago

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.

lostsoul8282• 6 years ago

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.

1e-9• 6 years ago

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.

maest• 6 years ago

& 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.

webinvest• 6 years ago

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.

laughinghan3• 6 years ago

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...

swyx• 6 years ago

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.

valuearb5• 6 years ago

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.

GlennS• 6 years ago

I think something like this might be more useful outside the USA.

Publicly traded companies in the USA already re-invest quite a large chunk of their profits for future growth, where companies in other countries would tend to pay out larger dividends.

liamcardenas• 6 years ago

Why not just create a template for corporate bylaws that you can certify, like a B-Corp? An LT-Corp, if you will.

If you aren’t implementing any exchange-level mechanisms, why does this need to be an exchange at all?

WalterBright6• 6 years ago

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.

pirocks• 6 years ago

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.

WalterBright6• 6 years ago

Retirement funds lose their investors if they do poorly.

bumby6• 6 years ago

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?

WalterBright6• 6 years ago

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

mastazi• 6 years ago

Non-Medium article about the same topic: https://ltse.com/articles/the-long-term-stock-exchange-goes-...

creeble• 6 years ago

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.

mlrtime• 6 years ago

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

heimatau• 6 years ago

I'm wondering a few things:

1. Can we do a direct stock listing?

2. How much equity needs to be offered?

3. Is there a minimum valuation that needs to be met to be listed?

4. What are the fees to be listed?

The Long-Term Stock Exchange Opens for Business

Related Stories