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A Long-Term Stock Market For The Far-Sighted (And Patient) Investor?

Wall Street

Stock exchanges have been around for centuries – is it time to tweak the model?

One entrepreneur thinks so.  Bloomberg reported Monday that Eric Ries, known as the bestselling author of “The Lean Startup,” has been busy reviving an idea that traces its gestation to his time writing that book – namely, a “long-term” stock exchange that focuses not on the sturm und drang of quarterly reports, but on, you guess it, the long term.

The newswire reported that Ries has gathered a team of 20 professionals – among them engineers and finance executives, and a few marquee names such as venture capitalist standout Marc Andreessen. The plans are preliminary but have already started to include the US Securities and Exchange Commission.  The next step, at least formally, would be to launch a draft application, which the would-be exchange plans to do later this year.  But even then the process could take years.

But timeframe aside, the larger issue is afoot, where short-term thinking – such as panic or euphoria in the days (or hours, or minutes) surrounding earnings reports, or any number of corporate events – can cloud the real underlying value of companies and their execution on longer range plans. Even companies get swept up in the “meet or beat” mentality where real innovation, Ries told Bloomberg, gets quashed in the face of a Wall Street popularity contest.

As it seems to be shaping up now, the LTSE, as it has been christened, has had three reforms that are top of mind, with Ries explaining them as how executives get paid, how information is shared, and finally, how investors vote.  A company looking to list on the (as yet unborn) exchange must pass muster through an approved compensation scheme, and increased detail on spending that often translates into long-term viability, as in research and development spending.  As for voting, there’s a move toward transparency and no more hiding behind “street names,” according to Bloomberg.

But there may be unintended consequences, noted the newswire.  Among them: The fact that shareholder voting rights extended to longer term holders may allow for stonewalling of takeovers, or other corporate events that may lead to higher stock prices.  In addition, there’s always the difficulty of the “build it and they will come mentality.”  The key will be to bring companies on board, as Bloomberg noted that Ries is in the midst of talking with smaller and mid-sized startup executives, some of whom are also investing in LTSE.


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