I hope I'm one of those people, because this is just about the most stupid idea I've ever heard. Why would anyone invest at all if the moment they purchase the stock they have automatically given up their financial liquidity for at least one year unless they are a) willing to take a loss, or b) give up any current profit (an effective loss since otherwise that money would have been accruing interest or otherwise useful). Just about every purchase is now more attractive and safer. There's no motive to take the risk that the stock might drop. If the stock goes up, I have to wait five years to capitalize on it; and the stock has five years - five years of potential war, pestilence, nuclear attacks, financial mismangement, crime, and god knows what - in which it can drop below my initial purchase price and leave me with less than I started. You're suggesting a game of roulette where I have to win continuously for five years straight to win, but a single loss can bankrupt me.
Here's also why it's stupid:
1) You're making investing in the stock market akin to investing in the traditionally safer but less volatile capital retreats, like gold, but without mitigating the risk factor. You're throttling the profit potential but without staunching the loss potential, effectively making investing in resources more viable than investing in innovation. Investors typically "retreat" back to gold and capital markets during times of geopolitical volatility - they give up the potentially wider profit margins of funding innovation and technology for the safety of a stable resource. By killing the potential profit margins you've just made investing in gold and garden gnomes more attractive than investing in technology. So basically, everybody becomes hoarders, a 3rd world country in which the economic system favors keeping diamongs locked in safety deposit boxes over funding - say, cancer research.
2) Your plan throttles innovation. People invest in what they see being the technology of tomorrow, and companies IPO to generate the capital required to do that R&D and bring that innovation to the market as quickly as possible. Your plan requires investors to be clairvoyant. They not only have to guess what will be innovative next year, they have to have the foresight to anticipate where next year's innovation will lead to the following year (since that is the first year they stand to gain), and then if they don't want to have most of the reward for their risk taxed away immediately, they have to have had the foresight to know what the innovation of the second year will springboard into the third year. If they want to realize the profit from their risk in investing in innovation fully, the investor has to be able to see five years into the future - to anticipate each technological stepping stone and how it leads to the next, all correctly, without having the company make a single misstep in their product cycle. All for an assumption you seem to have taken as a presupposition: that all stocks accrue value.
3) You slash the population of stock brokers in half but unleash a trillion new lawyers on the planet. Now into the second year of my investment, where I finally stand to gain all of 25% of what I actually gained for my risk (assuming I didn't actually lose anything) - it is the management of the former fiscal year who is responsible for any fuck-ups. It seems to me that erroneous financial statements or ambiguous press releases from any company now become litigable back into previous fiscal years. After all, with such a long chronological gap forced upon me by a technophobic innovation-hating government in which I can finally realize the fruits of my five years of clairvoyance, companies now become accountable for their statements five years into the future.
Anyway, your idea just seems to me unnecessary and trying to fix something that's not broken. If investment fund managers are wrong about companies like Google then so what? That is the risk those investors were willing to take in order to achieve a potential gain (and incidentally, they did gain - Google IPO'ed at something like US$87 and it's now well above $300). Where's the problem? Who is the victim?
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dancing_serpent
(no subject)
Date: 2006-03-01 05:14 am (UTC)Here's also why it's stupid:
1) You're making investing in the stock market akin to investing in the traditionally safer but less volatile capital retreats, like gold, but without mitigating the risk factor. You're throttling the profit potential but without staunching the loss potential, effectively making investing in resources more viable than investing in innovation. Investors typically "retreat" back to gold and capital markets during times of geopolitical volatility - they give up the potentially wider profit margins of funding innovation and technology for the safety of a stable resource. By killing the potential profit margins you've just made investing in gold and garden gnomes more attractive than investing in technology. So basically, everybody becomes hoarders, a 3rd world country in which the economic system favors keeping diamongs locked in safety deposit boxes over funding - say, cancer research.
2) Your plan throttles innovation. People invest in what they see being the technology of tomorrow, and companies IPO to generate the capital required to do that R&D and bring that innovation to the market as quickly as possible. Your plan requires investors to be clairvoyant. They not only have to guess what will be innovative next year, they have to have the foresight to anticipate where next year's innovation will lead to the following year (since that is the first year they stand to gain), and then if they don't want to have most of the reward for their risk taxed away immediately, they have to have had the foresight to know what the innovation of the second year will springboard into the third year. If they want to realize the profit from their risk in investing in innovation fully, the investor has to be able to see five years into the future - to anticipate each technological stepping stone and how it leads to the next, all correctly, without having the company make a single misstep in their product cycle. All for an assumption you seem to have taken as a presupposition: that all stocks accrue value.
3) You slash the population of stock brokers in half but unleash a trillion new lawyers on the planet. Now into the second year of my investment, where I finally stand to gain all of 25% of what I actually gained for my risk (assuming I didn't actually lose anything) - it is the management of the former fiscal year who is responsible for any fuck-ups. It seems to me that erroneous financial statements or ambiguous press releases from any company now become litigable back into previous fiscal years. After all, with such a long chronological gap forced upon me by a technophobic innovation-hating government in which I can finally realize the fruits of my five years of clairvoyance, companies now become accountable for their statements five years into the future.
Anyway, your idea just seems to me unnecessary and trying to fix something that's not broken. If investment fund managers are wrong about companies like Google then so what? That is the risk those investors were willing to take in order to achieve a potential gain (and incidentally, they did gain - Google IPO'ed at something like US$87 and it's now well above $300). Where's the problem? Who is the victim?