Wall St. - Should a company make decisions based on stock price?

Discussion in 'Politics, Religion, Social Issues' started by mcrain, May 7, 2012.

  1. mcrain macrumors 68000

    mcrain

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    #1
    Is it just me or is this backwards? Shouldn't the company do what it feels is best for its future, not what is best for making some mutual fund manager a little more?
     
  2. basesloaded190 macrumors 68030

    basesloaded190

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    #2
    You need to please shareholder and stakeholders before anything else when you are a corporation like GM. That may result in cost cutting around the board, but that's how it has to work
     
  3. kavika411 macrumors 6502a

    kavika411

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    #3
    Absent the "mutual fund manager" quip, I largely agree with you. Most of all I agree with your use of the word "should" - that companies "should" have a longer view, like Apple has for quite a while now. Once we leave the world of "should" and mandate which decision-making model a company "must" follow, then real problems emerge.
     
  4. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #4
    Unfortunately, Wall Street pigeonholes companies. They want to think of Apple as an innovative company, and probably would be happy if Apple killed off the 17" MBP and Mac Pro (too conservative; doesn't matter if those product lines are profitable). They want to think of GM and especially Cadillac as staid, conservative, and eventually, "safe".

    Silicon Valley has always confused Wall Street because to properly evaluate company prospects, you have to look more deeply. I would argue that Wall Street is still not getting it -- except for actual municipal utilities, there aren't any "safe stocks" any more. Every consumer-oriented company nowadays has to continually reinvent itself. Cadillac is trying to respond to that.
     
  5. Rodimus Prime macrumors G4

    Rodimus Prime

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    #5
    I agree with you. To much pressure is put on short term gains in stock instead of long term heath and gain of the company.
    That is the wrong way to go about it. Go long term (as in 10+ years down the road) not what is best for the next quarter. But then again CEO pay is all based on how they do 1 quarter to the next. Now long term.
     
  6. MorphingDragon macrumors 603

    MorphingDragon

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    #6
    There seems to be an investor culture in America for instant growth. Its rather damaging to the companies and the stock exchange.
     
  7. noisycats macrumors 6502a

    noisycats

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    #7
    (emphasis added)

    Can't entirely agree with nor support this stance. While there is tremendous pressure for short term gains, a strong leader communicating a bold vision will generally execute with a longer timeline.

    Yes, the stock price will take a beating in the interim but a successfully implementated bold plan will pay off in due time.

    Wall Street doesn't have to be short term, they have chosen to be.

    ----------

    This
     
  8. basesloaded190 macrumors 68030

    basesloaded190

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    #8
    While it doesn't "have" to be this way, this is unfortunately the way it is. Share and Stake holders are the easiest and fastest way to capital for company's and when they aren't happy and go away, so does a lot of capital.
     
  9. quagmire macrumors 603

    quagmire

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    #9
    I wouldn't trust Motortrend or C&D for inside info. Last I heard, the ATS Coupe is still on, but delayed.

    http://www.gminsidenews.com/forums/f70/ats-coupe-not-canceled-just-delayed-108666/

    I will never get the stock market. GM overall is doing well. Is profitable, overall maintaining marketshare and minimizing loss due to killing 4 brands, etc. And yet, there stock price keeps going down. Yeah, Europe is a weak point, but it shouldn't drag the stock prices down.
     
  10. Zombie Acorn macrumors 65816

    Zombie Acorn

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    #10
    This is the problem with the stock market and us terming the shareholders "investors". These people put money down in a secondary market to make a quick buck and will dump the stocks as quickly and profitably as possible. Some computer is probably buying and dumping a few millions shares a second somewhere, are they part of the investors group that is calling the shots for the future of the company?

    Its clear to me that the stock market should be reflections of practices and should not be the basis for practices in business.

    There are very few people who are in it for the long haul and are only interested in what makes them a quick buck.
     
  11. Rodimus Prime macrumors G4

    Rodimus Prime

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    #11
    Yep should be changed to only people who have any say are ones in it for the long haul.

    Mind you companies are playing the game as well now by selling non voting shares.
     
  12. Ugg macrumors 68000

    Ugg

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    #12
    And that's the problem with American auto companies, they are ruled by the short term to the detriment of being able to build a real, solid brand.

    ~20% of VW is owned by the German state of Saxony. This obviously helps keep jobs in the state and since the state really doesn't care about the price of the shares, VW can focus on its product rather than appeasing shareholders.

    Apple shares a lot more in common with German automakers than it does with most American tech companies and its narrow focus has paid off. Cadillac is probably doomed to yuppie retirees.
     
  13. Sydde macrumors 68020

    Sydde

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    #13
    Thing is, stock options are often a big part of a CEO's compensation package, so the CEO has a vested interest in making the stock price go up. Conveniently enough, I think these options do not count as wages, so they are not taxed as such, the CEO does not pay tax on them until they are sold. Wait, is there a capital gains tax?
     
  14. samiwas macrumors 65816

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    #14
    I'm not a finance expert, but isn't this only true for the original buyer of stock? The various people trading the stock afterwards did not give their money to the company in question. And until the company starts selling more stock, they aren't raising any more capital. And until they start buying shares back, I'm pretty sure they don't lose money when others sell.

    Is that correct?

    I rarely ever vote on any of my stocks, except when they start asking if they should up executive compensation.
     
  15. kavika411 macrumors 6502a

    kavika411

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    #15
    These comments makes me wonder whether there are people who favor outlawing secondary markets.

    I don't.
     
  16. basesloaded190 macrumors 68030

    basesloaded190

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    #16
    Your very correct, but the issue still stands with the situation GM was in a few years ago, they needed to raise capital. A new IPO was just that, if they needed to raise more capital you are right they would issue more shares, etc, but with out people willing to buys those or invest, they are worthless. It's really a no win situation for a company trying to cut costs while also trying to stay ahead of the pack in innovation
     
  17. samiwas macrumors 65816

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    #17
    Why do you think that? I don't think those markets should be outlawed, but I think that the pressure by a group of people only interested in quick money is not always the most sound business practice. The company I work for the most was just bought by a publicly-traded company. All of us are frightened by what that means.
     
  18. hulugu macrumors 68000

    hulugu

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    #18
    That's really interesting. I didn't know that.

    Exactly. I see similar reflections with analyst reports, when a company fails to hit a target number, the stock is punished regardless of how meaningful or realistic that number was.

    This isn't really a problem that can solved by legislative means. If companies want to react to the stock-market rather than the business environment, it's their noose.
     
  19. mcrain thread starter macrumors 68000

    mcrain

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    #19
    I certainly don't have any solutions, but the first step is identifying the problem. Stock price should only be relevant to corporations' and their long term shareholders' interest at the point of initial public offering (and any future secondary offerings). You can't outlaw secondary markets because the value of the stock would plummet due to a loss of liquidity. (Almost) No one wants to own 100 shares of a company that can't be sold, even if the company is doing well.

    The secondary market is similar to the problems in the market for commodity futures. There are a large number of entities and people buying and selling shares of corporations that have zero intent or desire to own those corporations. They are doing the buying and selling on a short term basis for the sole purpose of profit.

    It's gambling that makes Vegas look like a game of checkers.

    Which is funny because the same people who sell the stock and punish the company are the same people who are considered the experts, and prepared the reports in the first place. That being said, if it weren't for that type of system, the market would be even more volitile.

    Well said.
     
  20. iJohnHenry macrumors P6

    iJohnHenry

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    #20
    IMO, secondary markets only add to the burden suffered by those at the bottom of the food chain.
     
  21. mcrain thread starter macrumors 68000

    mcrain

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    #21
    How? Even if they do, the secondary market is required for liquidity.

    Personally, I would require every corporation to administratively die and reform on an annual basis, thus giving states and the federal government the ability to use denial of certification to do business as the teeth to enforce their tax and regulatory schemes.
     
  22. Rodimus Prime macrumors G4

    Rodimus Prime

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    #22
    I believe they are tax as wage. Not as capital gains. The only way they could get them as capital gains would be the buy the stock at the option price then hold onto it for a year.

    Honestly I do agree making most of their pay stock options is part of the problem. They have way to much vested interested in pushing the price up.
     

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