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206 Locavesting
public, while venture capital investors and some Goldman Sachs
clients were able to buy in beforehand.
The rise of institutional ownership has coincided with the
shrinking holding time for stocks and the increasingly speculative
nature of the market. Institutions must show quarterly results, so
their time horizons and investment decisions are not necessarily
geared toward the long term. That, in turn, pressures publicly
traded companies to manage their business for the short term and
focus on the all- important quarterly earnings. The trading mentality
puts little emphasis on the fundamental value—or values—of
a company, or its long- term worth.
Today, more than 6 billion shares trade hands on the NYSE
every day, up from 100 million in the early 1980s—a 60-fold
increase. 12 In 1940, investors held stocks for an average of seven
years; by 2007, that was down to seven months, according to NYSE
data. Factoring in high- frequency computerized trading, others
have pegged the average holding period at more like 11 seconds. 13
Can we still be called shareholders when the average length of
time a stock is held can be measured in quarterly reporting periods,
or even seconds?
As direct public offering expert Drew Field has written:
We are sold shares that were issued forty years ago. They have
nothing to do anymore with supplying capital. We’re just buying
from someone else who is selling. We’re betting that the
trading price will go up and the sellers are betting it won’t.
None of our money will actually get to the business that once
issued the shares. It’s likely that it isn’t even shareownership
that we’re buying. We may be sold options, futures, swaps or
other derivatives, which are even more remote from any business
use of capital… . This recycling of gambling symbols,
where one side of a trade wins and the other side loses, has
become the “capital market.”
This cultural shift has been aided and abetted by fi nancial
“innovation.” Our stock markets have been hijacked lately by one
such advance: high- frequency trading, where superfast computers