There are a lot of brilliant minds working hard on Wall Street to help investors pick winning investments, thus directing capital into opportunities offering the best returns. In turn, funding for the best business models provide the most utility for the economy and the best jobs for society. Further, Wall Street guides help shepherd healthy business cycles which act to cull weak companies to make room for new, better-positioned entrants (a process referred to as creative destruction). These are all good things, vital things.
Where this virtuous cycle may become bogged-down is after a company goes public and starts trading on the exchanges. At this point, Wall Street’s focus on buying/selling winners/losers detracts from its ability to support and fund business innovation and profit growth. Of course, it is a good thing to generate profits for both individuals as well as institutions like pension funds. Also, it is great that higher stock prices benefit well-run public companies that eventually intend to raise additional funds by issuing more equity for sale. However, we suggest that it is perhaps not the best use of all the Wall Street brilliance to focus on developing the highest-yielding trading strategies.
Rather, what if all this brilliant research and analysis was directed at helping companies to implement more profitable operating strategies? In other words, what if Wall Street acted like a consultant to public companies rather than as trading consultants to investors? In this case, Wall Street would support long-term investors by helping to build corporate profits (creating value as opposed to facilitating speculation). This simple upgrade could represent a key element in helping the capital markets to evolve into a more refined force for economic good.