Extending time to qualify for the long-term capital gains tax to overcome short-termism

For the past few years I've been advocating that the long-term capital gains tax rate of about 15% (to move up if the Bush tax cuts expire) be shifted so that the "long-term" holding requirement is 5 or even 10 years rather than 1 year. The tax rates should be staggered so that very short-term trading is taxed high (more than the income tax, perhaps by 10%), 1 year is taxed less (perhaps 5%+ of the income tax), and so on. Of course, there are other things that need to be addressed - for example, shareholders and institutional investors have to rise up and start voting their shares instead of leaving the managers to essentially own companies with a high turnover in ownership. This is one of the reasons I like extending long-term capital gains tax: it encourages people to stick with a company and act like an owner, and therefore hold management accountable to the long-term stability and profitability of a company.

I haven't heard many people repeating the idea. A while back I heard one guy on Bloomberg say that maybe there should be an 80% tax on short-term trading, and saying that his comrades on the Street would probably kill him for saying that. However, I was very happy to see the Aspen Institute's Overcoming Short-Termism report released in September 2009.

Of course, there are other things that need to be done - executives and employees doing risky deals (e.g., traders on Wall Street) should be rewarded with restricted stock or, if options are necessary, LEAPS (plus clawback arrangements). But I tend to think that these things can happen if more individual investors take long-term stakes in companies. The recent SEC rule which allows investors to access the proxy statement is nice, but really it's not such a big deal with the notice and access rules which allow investors to spend a relatively small amount of money to mount a proxy contest. Steve Nieman and Richard Foley have run proxy contests against Alaska Airlines in the past few years with only a few hundred dollars, and his votepal website offers some guidance on how to do it. He hasn't won, but that's probably more because he runs a slate of director composed of himself and his friends and family. Plus he seems to want to turn the company into a cooperative. I've been thinking about running a proxy contest, but generally I don't hold onto companies where there's reason to be highly dissatisfied.

Corporate auto mechanics, or lack thereof

I've been looking into auto mechanics because I'm worried about the clutch in my car. I felt some shuddering the other day. I think I tend to ride the clutch. I'm a bit worried about taking my car to the shop. I'm not rich. The last time it seemed like the small-town mechanics kept my car for a couple weeks and charged me what seemed like a lot for essentially just an inspection.

After doing some research I've learned that I should be looking for ASE (Automotive Service Excellence) certified mechanics. I've been looking for a corporate auto mechanic. People who know me might find that strange, but I've had a favorable view of corporations for a long time. As a gluten-intolerant person, the businesses which have are organized in their response to gluten are usually corporations (PF Changs and Red Robin come to mind). I used to have my oil changed by Jiffy Lube. Corporations have professional managers who are looking at the global scale. The services they provide are fairly predictable from location to location (eg McDonalds food). They often allow the customer to have an account with past history (my Jiffy Lube account) which can be pulled up anywhere.

I found an excellent analysis by Fulcrum Inquiry of the auto repair industry which confirmed my suspicions: the industry is highly fragmented with few to zero corporate giants; The Pep Boys (NSYE:PBY) and Monro Muffler Brake (NASDAQ:MNRO) are the only ones worth mentioning, and they're both basically small caps. I find this surprising. Corporate auto repair shops would have the following advantages:

• More oversight to keep the mechanics "honest".
• Organized customer account records showing the parts repaired, overview of issues, ect. This would be one of the biggest draws for me. The data could later be sold if the ownership changes.
  
• Market power in buying equipment, which could be passed on to customers.
• Systematic tracking of the reliability of parts, to locate the best deals.
• Prioritization of the training on common auto issues.

Although I recognize the advantages of corporations, I don't like corporate governance. Dispersing ownership among countless small owners and putting all the power in a professional manager with relatively little ownership doesn't make sense. The ideal system is a few medium-sized owners, each of whom has a representative on the board. I don't really like leveraged buyouts as an alternative to our flawed corporate governance system, either. But that's a discussion for another post.

The United Shareholders of America Campaign

Please join Carl Icahn (and myself) in the United Shareholders of America Campaign.

The Crisis of Scientific Journals

Some people think I'm crazy or overly demanding for desiring and expecting scientific research to be free and openly available for all to read and discuss, but this mathematician John Baez of MIT doesn't. He describes the high (and rising) price of academic journals as a crisis and calls for a boycott of the especially ravenous public company and media conglomerate Reed Elsevier (who's databases, as I commented earlier on, pretty much suck). He notes that Reed Elsevier's operating margin was 22%. It was a good year for the stock, rising 30% over the past year according to Google Finance. I first encountered Reed Elsevier when researching the publisher of New Scientist, a magazine which I thoroughly enjoy.

The good news is that in time Elsevier's hegemonic control over scientific publishing will eventually fall, as people such as Baez are outright boycotting the ridiculous restricted-access journals and the publishing companies which collect from them. The bad news is that it is taking longer than I would like, and there is still no good open-access source for economic and social science articles. For other disciplines the resources are much greater - see BiomedCentral, PLoS, Mathworld, and arXiv. The economists (along with all the other social scientists), those paradoxical profit-seeking academics and government workers, are behind the curve, but I doubt it's because they actually profit from journal revenues. The Directory of Open Access Journals lists some Social Sciences, but they are mainly either foreign or unprestigious.

Here the creator Mathworld recounts the story of how he published a book with CRC Press based on a website of his (the early Mathworld) only to be sued later when he didn't remove much of the content from open accessibility. He didn't win the suit - actually, he surrendered early and gave up all the money he'd made from the book.

Economists (and many others e.g. Cato) like to glorify corporations, and certainly they provide valuable services and offer some external benefits to society. Conservatives claim that corporations are unjustly criticized, with a few bad apples and incidents overshadowing the good. While I consider that view to be naive, it could be true. I am well aware that a corporation is in theory only as evil as its members. Yet in practice it is so easy for corporations to slip into an "evil" mindset, beset as they are by the everpresent shadow of the profit motive, share price, and bureaucratic management. In many ways they epitomize the banality of evil.

Eric, the Mathworld creator, says this:

I have had to conclude, to my sorrow, that CRC--perhaps like many other publishers in our era of wild corporate acquisitions and conglomerations--is no longer managed by people who understand and love books, authors, and readers.

The parent company of CRC, Information Holdings Inc., appears unashamed to treat information as a commodity to be exploited for short-term, bottom-line cash with no concern for long-term, strategic planning. The goal of the CRC representatives seemed to be monomaniacal: to squeeze from Wolfram Research and from me as much instant and short-term cash as possible, using the lawsuit as a lever.

How self-defeating in an era of rapid technological change! Apparently uninterested in looking forward and building good future business strategies, here are publishers focusing instead on how to squeeze greater quantities of immediate cash from old "properties."

I have come to realize how unusual it is to be working for a company that is run by people who still enjoy the core activities for which the company was founded. Very early in the lawsuit, a Wolfram Research response to the lawsuit mentioned that Wolfram Research has chosen to remain privately held in order to be free from the obligation to outside stockholders, who appear so often to focus corporations inordinately on short-term financial results. Wolfram Research's principals believe that they can take the long and broad view of the corporation's mission, as they could not if they had to satisfy stock analysts and uninvolved stockholders.

Information Holdings was, of course, publically listed on the NYSE - and no, they didn't go out of business (what large companies do these days?). They merged with The Thomson Corporation in 2003, a company which is now planning to buy Reuters. The Thomson family, which is Canadian, owns 70% of the company and also owns 40% of CTVglobemedia.