So you own shares in a company...should you be able to make suggestions?
You can't be prevented from making suggestions to a company, whether you own shares or not. There's this little thing called the "telephone," or you could go all old-school and "write" them a "letter."
Just because you can make suggestions, of course, doesn't mean that the company is obliged to follow them. They can "ignore" your suggestions if they like.
That said, unless you have a decent percentage of the outstanding shares you'll almost certainly be ignored by management, the board, and the other shareholders.
Depends. If your idea is actually good, there's a sporting chance that it will be adopted. But here i mean "good" in the actual "rational idea" sense, and not in the "idea that the voices in YD's head are telling him that would almost certainly destroy the company if not the world if implemented" sense.
Although the AGM is a lousy forum at which to present ideas. You'd be better off actually phoning or writing and talking to someone who would be responsible for implementing those ideas.
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What I find amusing about the whole thread is that since the 1980's I've been appalled at how the shareholders have TOO MUCH say in the company.
Companies focus on short-term profits ("We'll sell the hardware division right now for $100 million!") rather than long-term sustainability ("The hardware division will make us a solid $8 million/year for the foreseeable future") precisely in response to short-sighted shareholders demanding immediate profit over long-term growth.
So yes, shareholders have a say. It's not necessarily a good thing. I'd rather see a company where the board says, "You can buy shares if you want to, but we're going to completely ignore you and focus on long-term growth."
THAT would be a company I'd invest in!
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What I find amusing about the whole thread is that since the 1980's I've been appalled at how the shareholders have TOO MUCH say in the company.
Companies focus on short-term profits ("We'll sell the hardware division right now for $100 million!") rather than long-term sustainability ("The hardware division will make us a solid $8 million/year for the foreseeable future") precisely in response to short-sighted shareholders demanding immediate profit over long-term growth.
So yes, shareholders have a say. It's not necessarily a good thing. I'd rather see a company where the board says, "You can buy shares if you want to, but we're going to completely ignore you and focus on long-term growth."
THAT would be a company I'd invest in!
Eh. Not really a full picture. There are shareholders who want short term profits, as you say, mostly those focused on living off their dividends as a source of income, hence why high profit, i.e. the funds to pay dividends with, are important. But, in reality, most shareholders want companies to be long term focused, because if the company sells off that hardware department, they may get a big dividend this year, but they'll get none next year. They may also be focused on the capital side of income, more on selling shares once growth has been had, which won't happen with a short term focus. The problem is the directors, specifically how they're motivated.
Most companies assume people are motivated by money. I mean, they're all in business after all, what do you expect? So remuneration packages, bonuses, benefits, the like, are what's used to motivate managers/directors to focus on making businesses successful. But then they need a metric, a measurement, a basis on which these bonuses will be paid. They need something simple, measurable, and understandable. They need something immediate as well, as managers/directors won't accept a long lead time to bonuses. They want them every year, or they'll go to someone who will give bonuses every year. So, profit has become the de facto measurement of success. It's currently on the way out, but we're not quite there yet. Anyways, since profit became the one ring of goal measurement, and remuneration packages are based around profit, managers/directors become very profit focused. If their bonus is based off reaching $10m in profit, and that hardware dept. only gives $8m, you better believe they'll sell it, get their bonus, then go somewhere else next year.
As I said, shareholders (of the informed variety) are currently trying to initiate a move away from profit as a measurement figure. Too short term, too easily manipulated, no goal congruence. But finding another metric that is, as I said above, simple, measurable, understandable, and immediate, can be tricky. Not to mention, the resistance from the old boy network, who don't want to stop getting easily attainable, meaningless bonus targets. Also, as a side note, the movement away from careers, with a company for life, mentality, to a "work for company X for a couple of years, just to move to company Y for a couple years, rinse and repeat" has also fueled the ability for managers/directors to be so short term, as they know they won't have to stick around to see the long term consequences of their actions.
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Eh. Not really a full picture. There are shareholders who want short term profits, as you say, mostly those focused on living off their dividends as a source of income, hence why high profit, i.e. the funds to pay dividends with, are important. But, in reality, most shareholders want companies to be long term focused, because if the company sells off that hardware department, they may get a big dividend this year, but they'll get none next year.
I'd be interested to see any actual evidence you have to support this claim.
Largely because I think it's false. Most stocks are held by institutions, largely by mutual funds, ETFs, and pension funds, a group that by themselves accounts for about 35% of all stocks held in the United States according to the most recent numbers I can find. Mutual funds and suchlike are notoriously NOT interested in the long run, because they're competing for customers on the basis of the return they've been able to make over the most recent quarter or year.
Selling off the that hardware department for a big dividend this year is exactly what a mutual fund wants to see, because this will give them a big return this year, and next year they can put the hot money someplace else (and incidentally generate a huge trading commission for themselves.) The average mutual fund has a turnover rate of about 85%, meaning (roughly) 85 percent of the stocks they hold today will not be held next year, and turnover rates of 200%, meaning that they'll turn over the entire portfolio twice in a single year, aren't uncommon.
With this kind of turnover, why would anyone care about the long run of a company you plan to sell out of in six months?
So, in fact, I think that most shareholders are not at all interested in the long-term health of a company but in maximizing their immediate profit.
As I said, shareholders (of the informed variety) are currently trying to initiate a move away from profit as a measurement figure.
Again, I don't believe this is true. Profit -- more accurately, money returned to the stockholders -- is exactly what the majority of shareholders want.
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Eh. Not really a full picture. There are shareholders who want short term profits, as you say, mostly those focused on living off their dividends as a source of income, hence why high profit, i.e. the funds to pay dividends with, are important. But, in reality, most shareholders want companies to be long term focused, because if the company sells off that hardware department, they may get a big dividend this year, but they'll get none next year.I'd be interested to see any actual evidence you have to support this claim.
Largely because I think it's false. Most stocks are held by institutions, largely by mutual funds, ETFs, and pension funds, a group that by themselves accounts for about 35% of all stocks held in the United States according to the most recent numbers I can find. Mutual funds and suchlike are notoriously NOT interested in the long run, because they're competing for customers on the basis of the return they've been able to make over the most recent quarter or year.
Selling off the that hardware department for a big dividend this year is exactly what a mutual fund wants to see, because this will give them a big return this year, and next year they can put the hot money someplace else (and incidentally generate a huge trading commission for themselves.) The average mutual fund has a turnover rate of about 85%, meaning (roughly) 85 percent of the stocks they hold today will not be held next year, and turnover rates of 200%, meaning that they'll turn over the entire portfolio twice in a single year, aren't uncommon.
With this kind of turnover, why would anyone care about the long run of a company you plan to sell out of in six months?
So, in fact, I think that most shareholders are not at all interested in the long-term health of a company but in maximizing their immediate profit.
Whelp, as for evidence, I don't have any to hand, outside of anecdotal evidence from working in the industry. What I do have is a quick google search. First page of results for "mutual funds turnover rate" largely says, "don't invest in funds with large turnover rates." Now, of course, they mainly justify this by the increased costs of high turnover funds, due to the capital gains tax generated on selling as opposed to the income tax on dividends, and due to the increased management expenses reflected in more transactions, but the effect is the same, a movement away from what you describe, constantly jumping ship after sinking companies by selling off all their profitable assets, and towards buy and hold strategies, investing in the success of singular companies for longer term payoffs.
Think about how that pure profit strategy would actually play out if played to the level you appear to be suggesting anyways. Companies would be shutting down regularly as they're bought up, their assets sold off for a quick turnover, stocks sold, next company purchased, rinse and repeat. It happens, but not as often as such a pure profit perspective would suggest it should happen. One article noted that only 54 out of 300 funds had a turnover rate over 100%, but then another noted your claim of even non-aggressive funds reaching as high as 200% is not uncommon. I'm not saying it isn't something that happens, but I am saying it's not the majority, nor is it a sound strategy.
As I said, shareholders (of the informed variety) are currently trying to initiate a move away from profit as a measurement figure.Again, I don't believe this is true. Profit -- more accurately, money returned to the stockholders -- is exactly what the majority of shareholders want.
That's just it. Profit doesn't mean money returned to shareholders. It's been used as that for a long time, but it's not accurate, at all. You can have massive profits and still go bankrupt, because profit does not relate to actual money. Money returned to shareholders is definitely what shareholders want maximized, but profit is decidedly not a good measure of that. Investor's eyes are being slowly opened to that fact, hence why I said both informed investors and trying to initiate a move away. It wouldn't seem that way today, or tomorrow, but in ten, twenty years time, it'll be a different picture.
Can we compromise and say that the majority of 'individual' investors are interested in long term stability and growth while the majority of 'institutional' investors are interested in short term profits?
I'll agree to this.
Can we compromise and say that the majority of 'individual' investors are interested in long term stability and growth while the majority of 'institutional' investors are interested in short term profits?
Not without evidence, we can't. I've provided evidence for the second half, but I think the first half is wishful thinking on someone's part. God knows there are enough day traders and whatnot out there. I've a citation somewhere suggesting that the average portfolio turnover rate for individual investors is about 75%, less than for your average mutual fund, but still not compatible with long-term profits.
Whelp, as for evidence, I don't have any to hand, outside of anecdotal evidence from working in the industry. What I do have is a quick google search. First page of results for "mutual funds turnover rate" largely says, "don't invest in funds with large turnover rates." Now, of course, they mainly justify this by the increased costs of high turnover funds, due to the capital gains tax generated on selling as opposed to the income tax on dividends, and due to the increased management expenses reflected in more transactions, but the effect is the same, a movement away from what you describe, constantly jumping ship after sinking companies by selling off all their profitable assets, and towards buy and hold strategies, investing in the success of singular companies for longer term payoffs.
Yeah. One of the easiest way to figure out what people actually do is by looking at the advice they are commonly given, and reversing it. If people were actually following a buy-and-hold strategy, you wouldn't need to tell them to.
You can see how this "movement" is happening by looking at the size of the actively managed funds vs. index funds. The mutual fund industry is about $30 t-for-trillion dollars, of which only about 3% (1 t-for-trillion) are in passively-managed or index funds. The other $29 trillion are in the kind of 85% annual turnover mutual funds I described.
Think about how that pure profit strategy would actually play out if played to the level you appear to be suggesting anyways. Companies would be shutting down regularly as they're bought up, their assets sold off for a quick turnover, stocks sold, next company purchased, rinse and repeat. It happens, but not as often as such a pure profit perspective would suggest it should happen.
Actually, it happens exactly as often as one would expect if more than 96% of the mutual fund industry were in actively managed, pure-profit, competitive on a quarterly basis, mutual funds.