The Long and the Short of it
August saw a rising sense of panic in the markets as global debt became impossible to ignore. Confidence collapsed with Western nations fast running out of cash and growth stalling. In an effort to prevent a crash, several governments banned the practice of short selling - selling shares you do not own in the expectation they will drop in price, before buying them back and pocketing the difference.
Computer controlled trading makes up around 70% of the activity on Wall Street. Only last year, a dramatic five minute drop in the markets was caused by a trading algorithm selling shares with a value of over £2 billion in just twenty minutes, causing other super-fast trading algorithms to follow suit. Speculation like this can dominate a stock market.
In our obsession with making short-term financial wins we are losing sight of long-term value.
When publicly traded companies drift into a financially driven mindset they lose the vision and vitality that once made them great. Aspects of value like relationships, innovation and sustainability cannot be simply measured in a conventional monetary sense and therein lies one of the great challenges and potential battles of our time. We need better measures that reflect long-term value because companies can thrive through strong values and purposes beyond profit.
It is time to renew our commitment to long-term value and business based on values, instead of being driven by the fear and greed of those speculators who have no interest in the purpose of the enterprise, no interest in its customers, no interest in its workforce or indeed in any other stakeholder.
Business leaders everywhere need the courage to rise above pay incentives based on quarterly earnings or share price and pursue what really matters. Now is the time for leadership principles that encourage sustainability, investing in people and healthy working relationships, making quality products and services, and building strong community relationships. Now is the time to choose to do the right thing, not because it pays quickly, but because it is the right thing.
Be strong and courageous. Do not be afraid or terrified because of them, for the Lord your God goes with you; he will never leave you nor forsake you. (Deuteronomy 31:6)
Paul Valler
Comments
Thank you for voicing something that I feel really strongly - that we need to stop trying for 'get rich quick' schemes and to do the hard graft of building things that will last. Also, focussing on society as a whole and not simply pursuing our own well-being would make a real difference to how we do business. Thank you to all you entrepreneurs out there who do come up with innovative ways of building businesses, but for many of us without that vision and persistence, we put one foot in front of the other to work towards something that will last and make a difference to the world around us.
I agree with the overall message of your article. We should indeed focus on long-term value and aspects such as innovation and sustainability. However, as someone who works in the financial industry, I think the article confuses this with several other issues. Short selling in itself is no worse than short-term speculation that a stock will increase in value before selling and pocketing the difference. Rewarding someone for a long-term view that something is over-valued is better than rewarding someone for a short-term view that something may go up in price. Therefore I would rather we somehow discourage short-term speculation in either direction than long-term opinions on "real" value. Think of any of the recent bubbles (dotcom, property markets, etc.) A bubble, when speculation drives up the price of something way above its "real" value, does not help anyone. Rewarding those who short-sell in such situations can help prevent them. Computer controlled trading can provide efficient markets that should ideally give better prices to everyone. Think of the time in the 1980s in the UK before the market was deregulated. Before this, a small privileged number of stockbrokers could charge a lot of commission. After this, computers could do the same job more accurately with smaller commission. Imagine you wanted to change some UK pounds into US dollars for a holiday. If only a few people could do this for you, they could afford to buy at a much lower price than they would sell. If many bureaux de change could do this for you, they would have to compete with each other, and would therefore trade with much smaller differences between the buy and sell price, giving you more US dollars for your UK pounds for the same service. Similarly, computer controlled trading should give you narrower margins and therefore better prices. The real challenge is to distinguish between short-term "speculation" and a service that provides liquidity, ie. a service that is prepared to buy and sell at narrow margins. Do you have a suggestion on how to do this? As for measuring long-term value and "strong values and purposes beyond profit", I would be very interested to hear of a suggestion on how to do this in practice. Can you quantify it? Does it become something that represents real long-term value? Very easily it could become perverted to fit whatever measure we introduce, fitting the outward measure without matching the inward purpose. "Woe to you, teachers of the law and Pharisees, you hypocrites! You are like whitewashed tombs, which look beautiful on the outside but on the inside are full of dead men's bones and everything unclean." Matthew 23:27
A great article making comparisons between fast-buckery & good business values that sustain people's livelihoods & communities. J
interesting
What an excellent article by someone who knows the business environment from the inside. Sometimes Christian writers comment on business (usually critically) without really knowing it and how it works, and it shows. Paul thank you very much.
Amen. My husband and I were just bemoaning the reports on the news about how recovery is jeopardised by instability in the Euro zone, which is in turn imposed by the market having self-inflicted 'jitters'. It is my prayer that there will leaders brave enough to rise above being dictated to by spurious fluctuations in spurious measures of wealth... we desperately need less panicky assessments of whether a company, or even a country, is in good shape financially. I think it is better to look at progress over the slightly longer term rather than the dips and troughs of any given day, or several days, which may well just be down to traders taking a massive punt on a particular set of shares.
Date:
2011-09-06 11:23:27
Author:
Heather Williams