Long Term Stock Exchange (LTSE) is being proposed stop short term thinking and promote long term results. LTSE will require the listing firms to have long term compensation elements, share more detailed information about research, and give more voting rights to those investors who hold the stock longer. In theory, LTSE’s requirements will likely to promote longer term thinking and investing; however, there are many issues.
First, LTSE is a new exchange and it will take some time before it builds a reputation. Until then it is unlikely that good firms will list and investors will likely invest elsewhere. Also, forcing the rules will be also difficult at first given the lack of operating history. Second, restriction in compensation package, may prevent companies from hiring certain managers, ultimately hurting the firms’ and the investors’ performance. Third, more disclosure of R&D may lead to loss of proprietary information, giving an edge to competitors. Finally, giving more voting rights to longer horizon investors may actually make takeover harder, making the firm less competitive.
Despite these issues, I do agree that we need to think more ways to encourage longer term planning and investing. It would be good if LTSE can develop something in between the current public market and secondary share market. However, setting up an exchange is quite challenging. I am quite interested to see how LTSE will disrupt the exchange market.
To promote long term planning and investing, please invest long term like Warren Buffet. Only invest in firms that you would like to hold forever. Make sure to have a margin of safety and hedge if possible (not too costly).