There has been much talk over the years in the UK about how to make shareholders think more long term than they do at the moment.
In his presentation at the MoneyWeek conference a few weeks ago, Terry Smith pointed out that the average fund manager turns over 80% of their portfolio every year, and the average holding time for a share has fallen from seven years in the 1940s to seven months now.
That's a problem: if most of the people in the market are not investors, but speculative traders, how can we expect responsible capitalism (in which long-term shareholders hold the short termism of management to account) to take hold?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
All sorts of suggestions have been put forward to deal with this problem. Some are negative and legislative think the financial transactions tax, which is supposed to put a little grit in the wheels of smooth trading. But some are more positive.
There has, for example, been some support behind the idea of allowing companies to offer stepped dividends depending on investor holding periods so the longer you hold, the higher your annual dividend.
But none of these positive ideas have yet taken off. Why?When I have asked in the past, I have been told that there are regulatory problems with differentiating between shareholders in this way.
Enter TSB. Lloyds Banking Group has just announced that it is to sell 25% of TSB with the offer taking place next month.
But here's the interesting bit: Lloyds is planning to encourage retail investors to hang on to their shares by offering them one free share for every 20 shares they buy and hold for one year (subject to some terms and conditions that will be in the prospectus we haven't yet seen).
It seems like a good idea in essence (and perhaps those regulatory problems don't exist if the differentiation between shareholders is enshrined in the initial public offering (IPO) prospectus).
But, if the offer excludes as it seems to institutional investors, isn't it also a little discriminatory?
Given that it is the big institutions that we want to be long-term holders (they are the ones with the actual power to demand good corporate governance), why put in place a system that only encourages retail investors to stay in (and presumably dilutes the holdings of the institutional investors along the way)?
-
Private school fees soar and VAT threat looms – what does it mean for you?Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
-
Best and worst UK banks for online banking revealedWhen it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
