Of course, the holdings can’t grow, so he modified the concept and decided that the voting rights for each share should go up. He decided to set up a stock exchange where this kind of automatic adjustment would happen to companies that were listed on it. This sounds like a weird concept, and it is. However, not only did he get venture funding for this exchange from no less than Marc Andreesen, but he also got permission from the regulator, Securities and Exchange Commission (SEC), to set up this exchange. Needless to say, nothing much came of this startup exchange. Still, it’s better to have tried something fundamentally innovative that tackles a difficult problem, and then fail, rather than fail at yet another copycat startup that so many others come up with.
The underlying problem is perhaps the most serious one in equity investing. Most investors have an incredibly short-term perspective and their definition of ‘long term’ is ludicrously short. If you listen to social media discussions on the issue, you will find that opinions are divided, ranging from a high of 7-12 months to anything that is not day trading. Even the government’s official definition is just one year.
Some years ago, Fidelity Investments conducted a study in the US to find out what kind of investor accounts had the best returns. It was observed that the highest returns were earned by investors who had neglected their investments for several years, or even decades. Interestingly, many of these investors had passed away a long time ago. Even though one cannot recommend this as a strategy, it’s an interesting finding.
In recent times, one of the root causes of investors not venturing into long-term investments is that they simply do not want to do the work required to understand a business. When you invest for a few days or weeks, you just need to have a view of the stock movement. It’s enough to have a view on the stock price and there is no need to know anything about the company. However, if you invest for more than a year, you need to have a view on the company, sector, underlying business, management and, in fact, everything about the business itself.
There are two problems with this. One, investors do not have the time. Two, in this age of sentence-length media and social media, they do not have any attention span. This sounds like the same problem, but it isn’t. It can take several days to understand the basics of a business, and even if the investors have time, I find that the patience required to understand a company is simply not there.
Most of the investing world is complex, and if one gets used to the information dispensing style of Twitter or Instagram, then understanding complex things becomes almost impossible. For investors who want to put in their money for a longer period and are driven by the fundamentals, but cannot spare the time, it’s best to outsource the attention and research to a mutual fund, or a stock advisory platform like Value Research Stock Advisor. If that’s all you want, it’s fine. If you want to use these as a stepping stone to do more work yourself, that would be even better.
(The author is CEO, VALUE RESEARCH.)
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