Seth Klarman is one of the world's most renowned investors and one of the few praised by Warren Buffet. So like E. F. Hutton of those infamous ads from the 70s, when Klarman talks, people listen.Or in this case, writes.
Klarman's most recent letter to shareholders of his Baupost Group investment partnership is messing with the mood in Davos, the global economic conference in Davos, Switzerland, where political and business leaders gather to discuss the global economic situation and what might be done to make it better. However, the double whammy of Klarman's letter and the fact that many of the world's top dogs are not attending (Trump, Macron, Xi Jinping of China, Theresa May, etc.) is setting a bit of a gloom and doom tone, I would imagine, that Champagne and caviar probably won't cure. Among
the reasons to worry about the global economy that Klarman highlights are social unrest, an isolationist America, a slowing China, capitalism's fading rep among the young...
But the one thing Klarman harps on that I think is objectively true and basically inarguable is the fact that most public companies' maniacally focus on "maximizing shareholder value". He points out -- rightly, I think -- that by worrying so much about shareholders, companies are screwing their employees and customers, as well as the planet -- and maybe even their own prospects (no worries for the top brass, they win no regardless). After all, no matter what anyone says, focusing on your share price is a short term game, possibly even a scorched earth policy. Think about it: if you give your company's profits to shareholders, that's money that could have gone to the people who earned it, your employees and customers, or acquisitions that could strengthen your competitive position. Or let's say you decide to maximize shareholder value by hiring a math whiz who uses a max/min equation to figure out how to pay people the minimum for the max amount of work? Yeah, that will work great for maybe a year or two, but over time? Forget it. Or you could opt to be "saved" by a leveraged buyout firm that saddles you with so much debt you're fucked. Remember Toys R Us? Right.
Klarman's answer to this "sharemax" problem is to implore CEOs to behave like decent people. Never going to happen, at least not for the majority of C-Suiters. The reason is down to the human lifespan and how many productive years you have in you. Most people maybe have maybe 20 years of being able to earn a solid salary, hardly enough to get filthy rich, unless you factor in equity in the form of shares and options. So if you're a leader of some big company, you are going to get yours while the getting's good and enjoy your riches while you're still young enough to do so. There are exceptions, to be sure, quite a few I believe, but they're exceptions. It's just human nature.
How to fix this mess? Here's my idea.
If there is one law I think .gov should enact it would be to eliminate all classes of stock in public companies save for common, go back to the way it was in the beginning. No more preferred shares, no more super voting rights, none of that bullshit, just common shares. If this were to happen, then everyone in America could participate in the country's bounty, with the only limitation being the amount of money they can spend on stocks. Private companies could play by different rules, but not public ones. However, once a private company employed, say, 1000 people or had revenues greater than $1B, they would have to go public and issue enough common shares so that the public owned the majority of shares (this would apply to all companies), just a simple majority. That's it, a few easy to understand laws and suddenly all the insane hoops companies jump through to goose their shares by choking the golden goose would go out the window, same with ludicrous salaries and signing bonuses and severance packages, because the company owners, the shareholders, would have a say!
Given that more and more of our government are really rich people who made their money in the current system -- or who come from money -- a reversion to the true spirit of common shares will never, ever happen. But I can dream.
So here's the question for me: if "sharemax" is siphoning money from everyday workers and handing that money to shareholders, a process that over time would hollow out the non-shareholding middle class and start to cause people to lose faith in the system, which seems to be happening, am I just making things worse by trading stocks? I suppose I am, which makes me feel a bit low, but how else am I going to avoid having to live out my golden years in a trailer park outside of Phoenix?
Hmmm.
https://www.nytimes.com/2019/01/22/business/dealbook/world-economic-forum-klarman.html
