March 7, 2017
What We’re Reading This Week
Snap Inc. just underwent its IPO and discussed previously, this is an interesting company. Nevertheless, this blog is not really about interesting social media companies, it’s (mostly) about financial news. There have been several articles complaining about or chronicling a banker complaining about Snap Inc. share voting rights. It is sort of a weird dynamic right? A tech company wants to issue shares to the public, but they want to retain control of the company so they issue dual class stock – one with no voting rights for the public and one with voting rights for themselves. Bankers say, “Not having voting rights bums me out!” The tech company sort of shrugs its shoulders and sells the stock anyway. This process can take months and financial news talks about what a bummer the stock will be. In many cases, people still buy the stock. This is the key point of confusion for me: if you do not like owning stock that does not have voting rights, do not buy it. I honestly feel like I am missing some crucial piece of information. Why do people continue to talk about it? Of course, dual class stock can have some funny consequences. If you are Facebook for instance and you issue dual class stock but then later realize you didn’t give yourself enough voting rights then you will have to go back and issue a third class of stock. While you are in charge of all the decisions, you kind of look dumb.
Everything Old is New
A recent trend in retail investing is to eschew active management and adopt passive, index investing. Unfortunately, the average investor does an incredibly poor job of research on the things that they buy. Not that I can blame them, the industry makes it very hard to do this research. In the real world this manifests itself in people doing things one-way until someone smart/ambitious/clever tells them it is bad (for example, active investing is “bad”) and they should invest this other way (passive investing is “good”). People in general do not really understand the difference, so the guys that made money doing it the first way figure out how to keep doing what they are doing, but they talk about it like it’s the new second way of doing things. People buy the second thing and do not realize they still have the first thing. It also means that you get some really weird explanations of how someone is managing an investment. Matt Levine at Bloomberg wrote a great article on this back in 2014 when Sallie Krawcheck and Pax World Management collaborated on the Pax World Global Women’s Equality Fund. The fund invests in companies where women make up a significant portion of officers and directors. For the record, that is not the weird part. That part is cool. Here is where it gets weird. The fund name changed to “Global Women’s Index Fund.” See, there is no “Global Women Index.” If you buy an S&P Index fund, you can be reasonably assured of the index that will be used for investments. With the Global Women’s Index Fund the majority owner of Pax provided the names of companies in the MSCI that would be used in the mutual fund. When an investor actively chooses companies to be included in a mutual fund that is not a passive index. This is just one example but you can do this with any group of companies, all you have to do is create your own index and viola, you can make an index fund be whatever you want it to be.
There has been a pay gap between men and women for a long time (maybe forever?). Despite the fact that everyone knows this, they always make surprised and disappointed faces when it is discussed. Wells Fargo recently published a report, The Girl with The Draggin’ W-2, that outlines this phenomenon. The report asserts that discussing the reasons for this gap “may be the key to unlocking growth at the macro level and improving business profitability.” Personally, if I ran Wells Fargo, I would be so embarrassed by the report name I would immediately raise pay for all women in the company no questions asked.
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