Money Stuff: Stocks for the Long Run

In theory, a share of stock is worth the present value of all of its future cash flows. A dollar of earnings today is worth more than a dollar of earnings in 10 years, because you use some non-zero discount rate in computing the present value. But a dollar of earnings today is worth less than $10 billion of earnings in 10 years, because the discount rate isn’t 900% either. Investors should pay more for the stock of a company that makes no money now but will make a ton of money later than they would pay for the stock of a company that makes a little money now and will continue to make a little money later. And they do. Promising tech companies regularly trade at high valuations long before they make any money. OpenAI’s stock is worth $500 billion and it’s a money furnace.

An important but underappreciated theoretical fact is that this is true for all investors, no matter how long they plan to hold the stock. If you buy a share of stock today and sell it tomorrow, you are not buying one day of its cash flows. If the company announces earnings this afternoon, and the announcement is like “good news we made a ton of money today, bad news we won’t make any money in the future,” you did not do a good trade. The stock will go down due to the bad news about future cash flows, and tomorrow you will sell it for less than you paid. 

So, in theory, every investor, whether their holding period is a millisecond or a decade, should care equally about the long-term cash flows of the company, because those cash flows determine the future price of the stock at every moment, and the way any stock investor makes money from their investment is by selling the stock. [1]

In practice nobody really believes this in their bones. Everyone assumes that old-school, long-term, Warren-Buffett-y hold-for-decades investors buy stocks based on their views of the companies’ long-term prospects, while fast-money hedge funds buy stocks based on their views of whether the company will beat earnings this quarter. Or perhaps the story is more nuanced — really the hedge funds buy stocks based on their views of whether this quarter’s earnings release will make long-term investors more or less optimistic about the company’s long-term prospects — but the point is that the hedge funds will be looking at higher-frequency data points. The old-school people will let the company cook for a decade and see what it comes up with; the hedge funds will want to make sure that the company is on track each quarter.

And if you believe that, you might worry about “short-termism.” You might think that letting the company cook for a decade will allow it to make better long-term business decisions, prioritizing long-term value rather than this quarter’s earnings. You might worry that the hedge funds will pressure the company to make decisions that look better in the short term at the cost of long-term investment, because the hedge funds want the stock to go up in the near term. You might do things like propose to get rid of quarterly financial reporting, to give companies more freedom to focus on creating value in the long term.

Is that right, though? Which is correct: The theoretical everyone-has-the-same-infinite-time-horizon view, or the pragmatic, literal, people-have-the-time-horizons-they-trade-on view? I confess that my bias has been toward the theoretical view, but here is “Exploiting Myopia: The Returns to Long-Term Investing,” by Kalash Jain and Dian Jiao of Columbia Business School:

Investment managers often face short-term incentives, such as redemption pressure following recent weak performance, that discourage them from holding positions through temporary underperformance. These constraints can lead to systematic underinvestment in firms that require longer holding periods to realize value. We examine whether these horizon-driven frictions generate predictable return patterns across firms. We measure long-term ownership at the firm level using active managers' share-weighted holding periods (Horizon), and document that firms with longer Horizon generate significantly higher returns than those with shorter Horizon, particularly among stocks that are harder for myopic managers to hold. 

They argue that there aren’t enough patient long-term investors in public markets:

Evidence shows that long-horizon investors outperform on average (Cremers and Pareek, 2016), consistent with patient capital being in limited supply. When firm demand for patient capital exceeds the supply from long-term investors, not all firms with delayed payoffs or significant interim risk attract sufficient investment. These firms may then trade below fundamental value, yielding higher subsequent returns. Conversely, firms that appeal to short-horizon investors may attract excess capital, driving valuations above fundamentals and implying lower subsequent returns. 

And that, therefore, the companies who do have patient long-term investors outperform:

The key variable, Horizon, measures the average number of consecutive quarters a firm is held by active institutional investors, weighted by each institution’s ownership stake. To ensure the measure reflects strategic ownership Horizon rather than passive indexing, we exclude index and quasi-index funds. ... Because it aggregates revealed preferences across all active investors, Horizon captures the extent to which a firm is held by long-horizon institutions.  Our main hypothesis is expected returns increase with a firm’s shareholder-weighted Horizon, because institutional myopia creates a demand imbalance that can be proxied through Horizon. ...

In terms of economic magnitude, a 1% increase in Horizon translates to around 20 basis points (bps) of monthly returns, or 2.4% annualized. To corroborate the findings, we sort firms into quintiles based on Horizon and find monotonic increases in average returns from the lowest to the highest quintile, with a spread of around 50 bps per month, or 6% annualized.

And they find that this effect increased in 2004 when the US Securities and Exchange Commission required mutual funds to report their holdings every quarter (instead of every six months). That change, they argue, pushed mutual funds to focus more on short-term performance, which increased the returns to the companies that had longer-term holders.

One version of this story is the “short-termism” thesis: Companies would generally be worth more if their executives were left alone to invest for the long run. But public markets are full of short-term investors who push executives to maximize short-term profits, which reduces the overall value of companies. Doing stuff to change this — for instance, eliminating quarterly financial reporting — would increase overall stock-market value and social welfare. 

That would be a somewhat odd conclusion to take from this paper, though, just because they measure monthly returns: “Horizon is positively
correlated with the one-month future stock return, and the correlation is statistically significant at the 1% level.” The story here is not “if you leave a company alone for 20 years, it will be worth more after those 20 years than if you are constantly trading.” The story here is “if a company has a lot of investors who will leave it alone for 20 years, it will be worth more next month.” 

Another version of this story is that some companies are long-term bets, and other companies are short-term bets, and they attract different investors. Some companies (OpenAI) have “delayed payoffs or significant interim risk”; they attract patient investors because they repel impatient investors. But there aren’t that many patient investors — most investors would prefer to invest in companies that work now — so companies have to pay more, in the form of higher stock-price returns, to attract them. 

Speaking of delayed payoffs and significant interim risks: How much money will xAI, Elon Musk’s artificial intelligence (and social media) company, make in 2028? Man:

1. I don’t know.
2. You don’t know.
3. xAI doesn’t know.
4. Nobody expects anyone to know. The world of AI companies is fast-moving and unpredictable. “It may be difficult to know what role money will play in a post-[artificial general intelligence] world,” never mind what one particular company’s revenue and expenses will look like.
5. Whatever you think xAI will make in 2028, Elon Musk thinks it’s a higher number.
6. He might be right!

If you work at xAI in a financial role, you might be called upon to produce financial projections to give to potential investors in equity and debt financings. You might do some analysis, make some estimates, and conclude that xAI will have revenue and net income of $____ and $___ in 2028, where you don’t think that the numbers in the blanks are entirely arbitrary but, you know, kind of. And then Elon Musk might storm into the room, glance at your numbers, twitch violently and scream “no, triple them!” Then what? Then I suppose you could say “no, these numbers are good-faith evidence-based estimates of our future earnings, and if you arbitrarily triple them then that is deceptive and misleading and I cannot stand idly by while that happens, I quit, good day sir!” That’s fine, you can do that, whatever. It seems a bit silly. But go ahead.

The Wall Street Journal reports:

Several executives at xAI left after clashing with two of Elon Musk’s closest advisers over concern about the startup’s management and financial health, according to people familiar with the matter. ...

Some xAI executives said they left because they were concerned that some of the company’s financial projections were unrealistic, the people said. They also raised questions internally about the role Musk’s family office, Excession, played in managing some of xAI’s cash and accounting. ...

A person close to xAI said that it has full confidence in its projections. 

I mean? If you are an executive at an Elon Musk startup and you are concerned that the financial projections are unrealistically ambitious, you should definitely quit, because you are not a good cultural fit? Like that’s the whole schtick? 

Sorry, I just want to flag that everything below this point is extremely stupid and you should probably stop reading. In the previous two sections, I have assumed that financial assets are valuable based on their expected future cash flows. In the following sections, I have relaxed that assumption.

The way memecoins work is that a person or thing gets a lot of public attention, and then someone quickly creates a crypto token “of” that person or thing, and the token’s price goes up because the thing is getting attention (and then down, later, when the attention fades). The person who creates the token gives a lot of them to herself, and as the price goes up she sells a lot of them, and then she has a lot of money from, basically, being first to capitalize on people paying attention to the thing. Occasionally the person who creates the token and cashes in is connected to the meme — she’s the person who got the attention, or the owner of the cute animal who got the attention, or whatever — but that is absolutely not a requirement of any of this. If some squirrel gets attention online and you are the first to create a Squirrel token, you can cash in. The squirrel can’t stop you.

This is different from essentially every other financial instrument in history, where … you know … you have to … own … the thing … that you’re selling? Like if you’re selling equity in a business or music rights or credit-card cash flows or Beanie Babies, you have to own the business or the music rights or the credit-card receivables or the Beanie Babies. (If you’re selling wheat futures or unsecured bonds, you at least have to promise to eventually deliver the wheat or the payments.) But if you are selling meme tokens, you do not have to represent that you own the meme, or have any connection to the meme, or can deliver any economic rights connected to the meme, or anything else. All you are doing is pointing at the meme and saying “look at this meme, see, give me money for pointing at it.” It’s so weird, man.

Anyway the murder of Charlie Kirk has gotten a lot of public attention. From that fact, meme coins follow inevitably. You don’t have to like it but it’s true:

Minutes after Kirk was shot, tokens associated with him started to appear: “Pray For Kirk Coin,” “DEAD KIRK” and “Charlie Kirk’s dog,” among dozens of others. While many of the coins’ creators pitched the tokens as memorials to Kirk or sources of charity for his family, each was fundamentally an attempt to turn Kirk’s death into profit.

Within an hour of the shooting, one Kirk token reached a market capitalization of $16 million. By that evening, creators of Kirk coins had already collected hundreds of thousands of dollars in transaction fees on the Solana blockchain. On X, many crypto traders and influencers chided their fellow “degens”—a half-pejorative, half-affectionate term short for “degenerate gambler”—for making money from Kirk’s death.

Every time I write about memecoins I get this vague sense that people think something else is going on, but I can never tell what. Crypto influencers are chiding memecoin degens for profiting from something that gets a lot of attention? What else would the memecoin degens do?

Sure! Whatever!

The REX-Osprey DOGE ETF, trading under the ticker DOJE, is slated to launch Thursday. It offers exposure not to a store of value, but to a meme: Created in 2013, Dogecoin has no supply cap, tends to be highly volatile and was inspired by an internet gag that used the image of a Shiba Inu. Still, persistent demand has made it the eighth-largest digital asset by market capitalization, at $42 billion, according to CoinMarketCap. …

The DOJE ETF “is just the opening act in what will be a full-blown carnival of crypto ETFs,” said Nate Geraci, president at NovaDius Wealth Management. “Value is in the eye of the beholder, and there are clearly people who see some utility in Dogecoin — even if that utility is simply its entertainment value.”

I just feel like, 20 years ago, if I had said “people sometimes trade stocks for entertainment value,” you would have been like “yes that’s clearly true, that’s a perfectly fair point.” And then if I said “so I am going to create a stock that has no cash flows or fundamentals, but only entertainment value,” you would have said things like “what?” or “how?” or “why?” or “no that’s not the implication of the first thing you said; it’s clear that people get some entertainment value out of speculating on the prospects of businesses, and that motivates a certain amount of noise trading around the fundamental values of those businesses, but that’s not the same as saying that the stock market should be a venue for pure entertainment-based gambling. As a society, we want people to invest in the stock market, because that provides financing to businesses and allows ordinary people to participate in the growth of those businesses. And a robust stock market creates liquidity, which lowers the businesses’ cost of capital and also makes it easier for people to confidently invest to meet their future financial needs. And if some people are trading for entertainment or thrills, that enhances liquidity and makes society better off overall, even if it’s not always great for those people. But the point is that there’s some real economic activity at the bottom of it. If you take that away and create purely entertainment trading, that’s pointless nihilism.” 

But there is a crypto token that points to a picture of a cute dog associated with funny memes, and now there is an exchange-traded fund whose purpose is to hold that token. So if you want to gamble on the price of that token, you can do that, on the stock exchange. I wrote a few months ago:

My theory — that financial markets represent investments in real economic activity, while betting on sports represents zero-sum bets on sports — is outdated. The link between finance and real economic activity was always indirect and imperfect — lots of financial markets activity has always been speculative and irrational — and it is increasingly inessential.

All of it is betting on sports. Sports are sports, and entertainment is sports, and politics is sports, and crypto is sports, and stocks are sports. Democratizing finance doesn’t mean giving people easier ways to invest in broad economic growth, or to finance new business ideas. It means letting them make the bets that they want to make.

Within the next two years, will there be an ETF for football bets? Yes? Obviously? Obviously that’s where all of this is headed?

I wasn’t kidding, it’s only going to get dumber. Meme stocks are a lot like memecoins, in that the essential structure is (1) people online pay attention to a stock so (2) they buy it and it goes up. But unlike memecoins, a stock necessarily has some fundamentals; there is a company with a business and a balance sheet and cash flows. Perhaps the cash flows are zero, but it is rarely the case that the cash flows will certainly be zero forever. Someone can always make some sort of case that the company’s business will take off.

So the ordinary form of a meme stock is often that some people online say “I like the stock” for fundamental reasons, and other people pay attention and the stock goes up. Sometimes the influencer who starts this explains his fundamental reasons — Roaring Kitty got people to buy GameStop by doing very long and detailed YouTube videos about the business — but that is not strictly necessary in a meme world. Sometimes the fundamental reasons are cogent and insightful and sincerely held, but, again, not strictly necessary. If you are a meme-stock influencer with a track record of successful investing, and you tweet “I like this stock,” the stock will go up. If you are a meme-stock influencer without a track record of successful investing, but people enjoy your schtick online, and you tweet “I like this stock,” the stock will go up. Perhaps it will be easier on your conscience if you tweet “I like this stock” for some secret fundamental reason of your own, but having a conscience is also not strictly necessary.

Anyway Kash Patel likes Krispy Kreme:

Hours into his second day of contentious testimony in Congress, Kash Patel, the FBI director, sparked one of the more unusual stock rallies of the year.

Patel, who’s faced withering criticism from lawmakers in both the Senate and lower house, was pressed at one point on why he had purchased individual stocks while in office. Patel explained that he’s long liked to trade stocks and said that in this case he simply saw “good investment” opportunities in Krispy Kreme Inc. and ON Semiconductor Corp.

Within minutes, Krispy Kreme stock was up 12% and ON Semiconductor 4.1%. The stocks closed the day up roughly 1% and 0.5%, respectively, amid a broader market selloff following the Federal Reserve’s interest-rate cut.

Presumably there are some investors who believe that Kash Patel has a market-beating ability and inclination to do fundamental analysis of stocks, but why?

Look look look, if you buy the rights to the name and website of Enron Corp., and you start Enron social media accounts, and you use them to make deadpan recruiting videos that parody modern corporate culture, that is good comedy. That will get you written up in Money Stuff. Someone did that, and I’ve enjoyed it and written about it a few times. (Enron now stands for “Energy, Nurture, Repentant, Opportunity and Nice.” That’s funny!)

But you know what’s much funnier? Buying the Enron name and social media accounts and using them to start an energy company that commits complex financial fraud. In 2025, the highest form of parody is unironically doing exactly the thing that you are supposed to be parodying.

Is that what Enron is doing? At Bloomberg Businessweek, Max Chafkin reports on the new Enron, which is run by Connor Gaydos, a 29-year-old performance artist who previously did Birds Aren’t Real, a thing where he went around pretending to believe that birds aren’t real. Now he goes around pretending to believe that he runs Enron:

At the same time Gaydos was promoting his “nuclear reactor” on social media, Enron filed a real application with the Public Utility Commission of Texas to sell electricity—essentially attempting to turn the satirical energy company into a real one. That was followed by allegations of actual financial chicanery and investor losses. The deeper I got into the reporting of this story, the harder it became to discern satire from reality, and I started to wonder if anyone besides Gaydos knew exactly where that line was.

To Gaydos—a fan of Nathan Fielder, the stunt comedian who got licensed as a real-life commercial airline pilot for the latest season of HBO’s The Rehearsal—none of this is as strange as it sounds. “I think I’m more a CEO than most CEOs,” he says. “Everyone’s an actor at this point.” To reinforce this idea, Gaydos name-drops a handful of his “friends” in business, including Walt Disney Co.’s Bob Iger and GameStop Corp.’s Ryan Cohen. On his relationship with Iger: “We’re not buddies, per se, but there’s a level of mutual respect.” Cohen, Gaydos says, is “someone that I’ve not met a ton but am familiar with.” Disney declined to comment. GameStop didn’t respond to a request for comment.

His whole life is apparently like this; he can’t go to the bathroom without turning it into a bit:

After holding forth on the line between satire and reality in Trump’s America, he excuses himself, walks to the other side of the room, opens a door to the outside and proceeds to urinate. “Nature is my toilet,” he says. “Please quote me on that.” Is he making a point about the hypocrisy inherent in the way energy companies talk about environmental responsibility? Is this just the most convenient place in his home to relieve himself? I’m not sure—and I can’t tell if Gaydos is either.

Same with Enron:

Gaydos got more serious about the project in 2022, imagining a Birds Aren’t Real-like project that would involve “bringing back this notorious company and doing it in the most self-serious way you could ever imagine,” he says. “The only question you ever needed to ask yourself was, what would the real Enron do in this situation? What would their marketing look like?” 

But if your guiding principle is “what would the real Enron do in this situation,” you will eventually come up with the answer “defraud investors.” (That’s the first answer you’d come up with?) So Enron went and launched a crypto token, which “briefly reached a market capitalization of around $700 million” and then “crashed in the hours that followed after two early investors sold off their shares”:

The token launch led to something resembling an actual scandal. A trade publication, Defiant, described the Enron memecoin as “predatory.” …

When I began reporting on the crypto token, several people familiar with the inner workings of the project said it wasn’t a joke—the token launch had been a legitimate screwup that led to a power struggle within the company and a frantic scramble at damage control. … Many of the token’s early buyers, according to these people, were part of the team McIndoe and Gaydos hired to orchestrate the prank. According to the account of these sources, they were victims of a reanimated version of the original Enron fraud.

Ehhh fine, I can see it, but is a memecoin rug pull really a reanimated version of the original Enron fraud? That’s a pretty garden-variety 2025 crypto thing. I feel like he needs to sign some fictitious long-term contracts and book their entire value as revenue upfront, really lean into the Enron aspects of it.

Nvidia Invests $5 Billion in Intel, Plans to Co-Design Chips. How telecoms tycoon Charlie Ergen wrestled debt-laden EchoStar back from the brink. StubHub Stock Drops in Volatile Debut. Banks Race to Prove They’re Not Biased Against Conservatives. Global Banks’ Financing of the Energy Transition Has Stalled. Exxon and Chevron beef up energy trading to take on European rivals. Coffee’s Big Price Swings Push Volatility to Four-Year High. DeepMind and OpenAI achieve gold at ‘coding Olympics’ in AI milestone. BCG to train staff on ‘humanitarian principles’ after Gaza outcry. Albania puts AI-created ‘minister’ in charge of public procurement.

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