Employment And Investment Decisions Discussion

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I firmly believe that a company that can appeal to its market and at the same time inspire the loyalty of those who plow the furrows, keep the turnover down, not continually look for ways to "curtail headcount costs," such a company may not show the same dramatic short-term top-tier rewards, but such an outfit will outrun and outlast its shorter-sighted brethren. -- gh

It would be nice if this was the case, but is there any evidence for it? Can a publicly traded company survive long enough to thrive while ignoring quarterly reports?

The question isn't whether or not the company survives; many publicly traded companies can go quite a while without making any profit without risking their solvency. The question is whether or not management will survive; one reason publicly traded companies act so short-sighted is that the equity markets demand it. Losing money several quarters in a row, without taking the "necessary corrective actions" (downsizing, outsourcing) to try and reverse the trend, is the quickest way to get a CEO fired. And when s/he is fired, you know what the successor will do first.

But if it was a better strategy to keep competent staff, including management, while building for long term profits, wouldn't someone, somewhere have made it happen? Is it impossible, has it failed or has it succeeded silently? I know several privately owned companies that do this, just none that answer to shareholders.

Right. It's basically how small companies become large companies. They hire talented management and staff, and hang onto them for dear life. Big, successful companies play by a different set of rules (stockholders to please, more money with which to purchase innovative small companies, etc.). There's a moral here somewhere.

But if a big company could make more money by applying the small company strategy, they'd have an advantage in the market. Money talks and bullshit walks. Is it impossible, has it failed or has it succeeded silently?

The way most small companies become big is to--at some point--have an InitialPublicOffering?. At that point, they become slaves to the equity market. And Wall Street doesn't care about your long-term strategic vision; they care about the next couple of quarters. Maybe a year.

Investors who want to invest for the long term typically don't go for a single "well-managed company"--too risky (and too hard to tell from the outside whether or not a company is well-managed). Instead, they go to mutual funds. And mutual fund managers are some of the biggest assholes when it comes to demanding profits (and stock price increases) now from corporations.

A long-term market advantage doesn't imply that it should naturally happen in a market-driven system. Players in market-driven systems tend toward HillClimbing algorithms for increasing net value--which means that they can get focused on achieving a local optimum, if reaching a higher optimum requires a short (or long) trip down the hill first.

So the claim at the top of this section is incorrect. Any company that doesn't seek short term profits frequently enough can't outlast those that do.

They believe in FutureDiscounting.

I don't think it has anything to do with what "they" believe. It's the best way they can find to survive.

The error here is the fallacy of the excluded middle. Seeking short term profits and planning for the long haul are two ends of just one axis of corporate action. It's not an either-or situation.

If it's an error, why doesn't someone correct it and make more money?

Wisdom isn't taught in schools.

Something called "economics" is taught, for whatever that's worth, but I submit that if what is taught was worth anything the state of national economies would be better than it is.

Something called "business" is also taught, and the same applies: if the material were sound, the results of its application would be clear and the businesses would thrive -- small businesses would grow, big ones would flourish.

Since neither the economy nor the health of businesses can be said to be well maintained on any kind of scale, then clearly some large part of what passes for "knowledge" or "wisdom" in these fields is broken.

We find ourselves watching large (public) companies trying to make use of the oxymoronic "conventional wisdom" and "experts" standing around trying to make a case for why their latest guesses were right or wrong.

Why doesn't someone correct it? It's hard to teach sense when so many actors have so much invested in the "wisdom" of the moment.

It is possible that someone who succeeds at sanity in business will eventually have the courage to tell others how it's done, and even possible that someone will listen.

But until someone does, we will continue to see vice called virtue, speculation called expertise, and folly called wisdom.

You would need an honesty of purpose that is seldom seen and often ridiculed, the courage to see it through, and sufficient means to carry the day, all without subscribing to the current broken model to get it done.

I would say that's a pretty substantial barrier to entry.

-- GarryHamilton

But the market is competitive. It doesn't matter what is taught or not taught. Honesty doesn't matter. If a strategy works, it works. If the strategy of focusing on long term (or even mid term) profits to the exclusion of short term profits worked (i.e. made more money than another strategy) someone would employ it and gain a competitive advantage.

Not if the prevailing methods lead to local maxima instead of global maxima. The emphasis on short-term profits, and the tendency to remove/sue BoDs? who do not generate short-term profits may be preventing the companies from moving through a stretch of non-profitibility to a bigger peak of profits. The algorithm literature is full of examples of such "hill-climbing" strategies that lock into a sub-optimal result.

{Such algorithms may have to flatten distant hills if they apply the widely accepted practice of FutureDiscounting.}

And there's an economic reason why continued profitability is priced at a premium: the risks associated with long term search for "global maxima" are exceedingly high. If you think you can do better, go ahead and try: it's a free country after all.

: Interesting rationale. Free Country? Sort of. As long as you're unthinkably well funded and don't need the goodwill of investors, and as long as you can recruit from a pool of intelligent people who haven't bought into the prevailing "wisdom" of finance and profit, and as long as you have the wherewithal to persist in the face of certain opposition, then "go ahead and try" has a shot.
: There are certainly examples of companies that got their start in the garage and grew into hugely successful corporations, and which, after going public, have continued to "succeed" by the standards of public companies, just as there are companies that have never gone public and yet have become hugely successful as privately held ventures. My original comment (which was used to start this page) was a challenge to the conventional wisdom of how success is managed -- the idea that the ZeroSum game is not the only possible approach and arguably not the best. I don't subscribe to the idea that just because everybody does it a certain way then that must be the best way. If I had the funding, you can be sure I'd put it to the test. I don't. You don't. So we sit here and argue which is better, my ideal or your reality. I'd like to see the ideal get a shot. -- gh

It doesn't matter if there's a "better" way to do it unless that better way actually works. Funding can't be left out of the equations. If you can't get funding you can't grow. The less short term profit you show the more funding costs. It doesn't matter how well your company will do in 20 years if it goes out of business in 6 months. -- EH

I'm not actually disagreeing with you, Eric, I do understand that it's competitive and that an unfunded "better idea" can't have relevance. History is littered with better ideas that took years or decades to catch on because of the inertia of prevailing wisdom. I still think that it deserves a shot. If I could talk someone into funding it or if I had the funds myself I would certainly do it.

Said another way, the fact that no one has the guts or money to do it right doesn't mean it's wrong. -- gh

I don't think right or wrong relate to this issue, nor do I think inertia is the problem. You can't talk someone into funding it because they can get a better deal (from their perspective) by putting their money into a venture that tries to deliver quicker results. Its analogous to XP and BigDesignUpFront. Reduce risk by delivering early. -- EH

Agree that if the question is "what makes money" then right and wrong do not relate. If the question is "what's the best way to grow a stable company with long-term staying power," then right & wrong are relevant. I don't believe that I ever suggested that it is "right" for a company to lose money. I did suggest that rapacious profiteering and sacrificing the staff for a buck was undesirable.

Clearly, anyone who would fund such an operation would have to want the kind of longevity that I'm suggesting. No investor whose entire motivation is dollars will buy in. He'd have to wait too long for his ROI, where "too long" is entirely his call. I wasn't suggesting that an endeavor of this kind would be popular, quite the contrary.

I will freely admit that I haven't done the modeling for the kind of business I'm proposing, I'm merely postulating that it could be done and that it's results would be worth having. It probably wouldn't work if the whole motive was personal enrichment. And I might be wrong. Maybe humanity can't get out of ZeroSum mode and do real WinWin. I think it can. -- gh

No investor whose entire motivation is dollars will buy in.

You don't want investors, you want philanthropists. An investor only invests for "personal enrichment". They may use other criteria to select where they invest, but at the end of the day they want the benjamins.

If 99% of humanity "got out" of zero sum mode it would leave them vulnerable to the 1% that didn't. That's the key to EvolutionarilyStableStrategies. There will always be someone who finds a way to benefit from vulnerability.

-- EricHodges

You're right, of course. Same problem with democratic political systems.

Except that it assumes that not wanting to win at the expense of your neighbor also means you won't be able to keep your neighbor from winning at your expense. And now we're into the social fabric.

If, by definition, the intent to act to the benefit of all participants means that you can't detect or guard against the thieves, then the exercise is pointless. If actual wisdom and strength can live in the same domain, then perhaps there is ... hope. -- GarryHamilton

FYI: Humanity has not been playing zero sum games for a long time already. But thanks for your concerns, anyway.

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