An attempt has been made recently – and quite widely publicized – to launch a Long Term Stock Exchange (LTSE) to foster long-term value creation by companies. The principles are accessible at this page: ‘A principles-based approach‘. It basically requires companies listing there to adhere to principles protecting stakeholders and the environment, and developing long term growth strategies.
While the principle is absolutely commendable, I see a contradiction between the concept of stock exchange and the concept of long term growth and capital stability. In all times, markets to be liquid require a high amount of transactions which then expose to all sorts of psychological effects from traders. On the other hand, it allows quicker reallocation of capital when the economic fundamentals change.
Some companies effectively deploy long term strategies only when a substantial percentage of their capital is held by shareholders that have the same intent, such as family-owned businesses. They may struggle more to adapt to an evolving environment in that case (sometimes family-owned business get stuck in old-fashioned approaches), but this provides stability that can also be beneficial.
At this stage I fail to see how the LTSE can be more than an exchange of stocks specifically picked for some strategic qualities, and effectively foster a longer-term intent from traders and clients. We’ll see!
