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Matt Levine

The Long-Term Stock Exchange Is Worth a Shot

Silicon Valley venture capitalists are shaking things up with "tenure voting."
The long view hasn't been this popular in ages.

The long view hasn't been this popular in ages.

Photographer: General Photographic Agency/Getty Images

Here is a theory of stock prices. The value of a share of a company is equal to the market's expectation of the present value of its future free cash flows. If the company does something that will permanently increase its earnings power in the future, that will increase the price of its stock. If the company pursues a short-term gain at the expense of its long-term prospects, that will decrease the price of its stock, because the bulk of a share's value comes not from this quarter's earnings but from earnings over the entire future.

As a theory of stock prices, this has the advantage of being (1) very, very standard economics and (2) kind of intuitive. (A popular alternative theory -- that stock prices reflect only very near-term events and ignore the future -- requires investors to be, collectively, very stupid.) It has the disadvantage of being somewhat debatableempirically, but it is not obvious that the alternative theories are any stronger there.