Are Publicly Traded Corps "Different"
Posted: Thu Sep 08, 2011 12:57 pm
Our discussion on stock vs gold performance got me thinking about the nature of a PTC (publicly traded corporation) vs a CHB (closely-held business), and whether maybe the nature of the S&P 500 is much more like that of money than of ownership of a business.
To analyze the two a bit...
A CHB is often owned by someone that manages the business, holds it as their main store of wealth and their main source of income, often interacts with customers, and usually plans on owning it for a decent portion of their life. There is often an emotional connection between the owner and the business, employees and customers, and very few "contracts" separating the owner from the operation.
A PTC is an entity owned by people who can sell their ownership on a whim, and often have very little emotional ownership of the entity. These shares are almost as exchangable as currency itself, if a bit volatile and not usually used to contract business. For the most part, the owners don't manage the company, but through a "board of directors" hold "management" accountable. "Management" has signed up to have a duty of performance, but through an imperfect contract often is improperly motivated to do what's best for the company, owners and customers in the long-term, or even medium-term. There are a series of contracts separating the ownership and employees from the performance of the company and the legal liability of its actions, and the ownership is in fact SO efficiently transferred, that its liquidity seems to be far more instrumental in raising capital and therefore driving the company's decision-making than the benfits of having a small group of quasi-permanently-invested stakeholders that oversee operations.
To refer to a recent conversation on nutrition, a CHB seems to be whole grains... almost better off for its inefficiency and slow digestion, while a PTC seems to be white bread... cleaned, "purified," cut up, and stripped of any rough edges for mass consumption by people who prefer the flavor of something a little less tough and complex.
I'm not saying, by any means, that we should abandon the stock portion of the PP for various business startups we see as being more "pure," but maybe that we should look at stocks differently than we do.... at least for those who tend to see publicly traded stocks as entreprenurialism, capitalism, and creativity in action.
To me, due to the separation, through contracts (imperfect and enforced by gov't), of an owner, board of directors, management, labor and customers, none/few of which with much real emotional stake in the future of the company, PTC's much-more resemble the bureaucratic mess of big government, with the hope that contract after contract will fix any moral crises that develop and generate profits. This is almost the antithesis of the ownership/entreprenurial-based vision we tend to associate with business, and I think we should see PTC's as a neutered, sterile versions of what we ideally like to envision owning a stake of when we invest in businesses.
To analyze the two a bit...
A CHB is often owned by someone that manages the business, holds it as their main store of wealth and their main source of income, often interacts with customers, and usually plans on owning it for a decent portion of their life. There is often an emotional connection between the owner and the business, employees and customers, and very few "contracts" separating the owner from the operation.
A PTC is an entity owned by people who can sell their ownership on a whim, and often have very little emotional ownership of the entity. These shares are almost as exchangable as currency itself, if a bit volatile and not usually used to contract business. For the most part, the owners don't manage the company, but through a "board of directors" hold "management" accountable. "Management" has signed up to have a duty of performance, but through an imperfect contract often is improperly motivated to do what's best for the company, owners and customers in the long-term, or even medium-term. There are a series of contracts separating the ownership and employees from the performance of the company and the legal liability of its actions, and the ownership is in fact SO efficiently transferred, that its liquidity seems to be far more instrumental in raising capital and therefore driving the company's decision-making than the benfits of having a small group of quasi-permanently-invested stakeholders that oversee operations.
To refer to a recent conversation on nutrition, a CHB seems to be whole grains... almost better off for its inefficiency and slow digestion, while a PTC seems to be white bread... cleaned, "purified," cut up, and stripped of any rough edges for mass consumption by people who prefer the flavor of something a little less tough and complex.
I'm not saying, by any means, that we should abandon the stock portion of the PP for various business startups we see as being more "pure," but maybe that we should look at stocks differently than we do.... at least for those who tend to see publicly traded stocks as entreprenurialism, capitalism, and creativity in action.
To me, due to the separation, through contracts (imperfect and enforced by gov't), of an owner, board of directors, management, labor and customers, none/few of which with much real emotional stake in the future of the company, PTC's much-more resemble the bureaucratic mess of big government, with the hope that contract after contract will fix any moral crises that develop and generate profits. This is almost the antithesis of the ownership/entreprenurial-based vision we tend to associate with business, and I think we should see PTC's as a neutered, sterile versions of what we ideally like to envision owning a stake of when we invest in businesses.