Global investment markets for the past 12 months have experienced somewhat of a retail boom. The rise of "meme stocks" like GameStop and AMC Theaters have seen ordinary people become unimaginably wealthy in the span of a few months, gaining 1,430% and 3,000% respectively. And even they have nothing on the cryptocurrency market and it's new king: Dogecoin, who rose over 8,900% at its peak. One man even took out loans and invested his life savings in Dogecoin during the early 2021 hype, and my god did it pay off.
Extreme short-term price volatility across the board can be attributed to a few reasons:
The introduction of brokerages like Robinhood that only require a $1 minimum to open a brokerage account, have $0 trading commissions and "gameify" the investing experience,
The access to immediate funds thanks to government stimulus,
Access to a lot more free time due to the pandemic keeping people shut indoors.
This has drawn the ire of traditional investing powerhouses like Berkshire Hathaway's Charlie Munger, who noted about Robinhood:
It's god awful that something like that would draw investment from civilized men and decent citizens. It's deeply wrong."
People like Munger and his more-famous business partner, Warren Buffett, have long espoused the benefits of the long-term hold style of investing. In holding a company for the long-term, you can take advantage of lower taxes when you sell, you have a greater chance of making a positive return and you can really take advantage of dividends and share buybacks where possible. Millennial traders couldn't give less of a shit about any of that. When they see eye-popping numbers like we covered above, they balk at the idea of grandpa holding Coca-Cola for 20 years to see a 5x gain in share price when they could own Dogecoin for a month, sell it and live on their new 120 foot luxury yacht. However, there's a new game in town that has set out to turn the table on millennial YOLO investors. Introducing: The Long Term Stock Market.
What Is It?
The LTSE made waves earlier this year when it was announced that high-flying tech companies Twilio (NYSE: TWLO) and Asana (NYSE: ASAN) would be the first two companies co-listing their shares on the new exchange. The LTSE's mission statement reads something like an honest millennial in a private moment, seeking stability and long-term values, not only in share price and taxes, but things like ESG and corporate transparency. You know, everything that investors claim they want but will immediately sideline in favor of a higher return.
In order to co-list on the LTSE, Twilio and Asana had to commit to some long-term corporate governance. They had to agree to align executive and board compensation terms with the long-term performance of the company, as well as "take customers and employees into account." More rules the LTSE sets are things like "considering a broader group of stakeholders" and "measure success in years" which is right out of the "get rid of quarterly earnings calls" Buffett playbook. They also state that companies should "engage with their long-term shareholders." OK great. But what does that mean exactly...? It's also definitely worth noting that the CEO's of both Twilio and Asana are early stakeholders in the LTSE, each owning less than 1.5% of the exchange, according to the Wall Street Journal.
How Do I Invest?
You can't. Well, assuming you're not part of an institution like an investment bank or hedge fund. The exchange currently has a pretty exclusive list of cleared broker-dealers that are allowed to "trade" on the exchange, and you're not one of them. Neither are your current broker-dealers, like SoFi or Robinhood. I actually don't imagine you'll ever be able to buy into this exchange. The idea of a retail investor is anathema to what this new exchange stands for. Retail investors are unpredictable and volatile because they can be. No matter how much money a standard retail investor has, it'll never be enough to move securities prices on their own, so they can jump in and out of companies at a moment's notice. That's the literal opposite of the exchange's mission statement. What you can do is take note of the companies that are co-listing and just buy them through your typical brokerage on their main exchanges, like the Nasdaq or S&P. These companies are co-listed, meaning there is no exclusivity to the LTSE, which is a really big issue moving forward. So can it move forward?
Is This Going To Work?
I'm fascinated by this. The move into ESG investing by institutions is driven by demand from a new customer base (i.e millennials) to house their money in companies that are more transparent and eco-friendly, among other initiatives. This in turn allows money managers and funds to get into companies that other money managers and funds want to jump into, increasing demand for companies in that space and bada bing bada boom, you have demand. And with demand comes higher share prices, which in turn drives more money into the money management funds, which increases fees gained from their clients and everyone wins. The LTSE is looking, in part, to do away with the traditional exchange model that nets fees and intentionally obscures the data to the biggest and mightiest managers, so it'll be interesting to see how these asset managers embrace this. Will they jump in harder because of the demand from their client base? Or will they stray away from the exchange and just purchase the shares of the companies that list to fulfill the criteria.
Basically, I don't really see this new exchange being a needle-mover until they gain exclusivity. They need a company, existing or a new IPO, to list solely on their exchange in order to give institutions a reason to give them a second look. Until then, I really don't see much of a point.
What do you think of this new exchange? Let me know in the comments below!
