I’d agree that “mom and pop” shareholders being once removed from the buying decision through mutual funds may make a difference. However, most studies show that individuals do not properly diversify their 401(k) and IRA holdings. I’d tend to agree with Prof. Manne that they are passive, but that may be because of other factors and not some inherent risk-seeking behavior. Cum hoc ergo propter hoc. (Aren’t individuals generally presumed to be risk averse?) I’d think a lack of knowledge, concern over making a mistake, and inertia are more likely explanations than risk-seeking.

Again, I acknowledge that you gentleman have more knowledge and education in this area than I do. I just thought I’d toss my 1 cent in to the discussion.

Cuban’s point of view is exceedingly naive (or intentionally misleading). Everyone wants a homerun — the question is how much risk is it worth bearing to get one, given that swinging for the bleachers also means more strikeouts. Sure, ambitious CEOs like homeruns. They also don’t want to lose their shirts. What’s amazing is that Cuban makes this very point — although he draws precisely the opposite conclusion from it:

Then there are those hired to be CEOs. What are the goals of hired CEOs ?. Plain and simple, its to get paid. To make as big a chunk of money as they possibly can in the shortest amount of time. No one in their right mind is going to take on a job with the amount of pressure, stress and away from family time that comes with being the CEO of a public company without getting paid incredible sums of money.

Unless CEOs are exceptionally thick (and they aren’t), that “getting paid incredible sums of money” translates into “receiving compensation with an extremely large expected net present value.” I would think that by Cuban’s own standard “failing to get paid at all because the company failed utterly” would be undesirable and factored into any rational analysis.

Moreover, to echo Bill — here’s Cuban on shareholder interests:

There is a survey published by the Securities Industry Association that provides some fascinating data about who owns stock in the US, how much and how they hold it.

Here is the link to the survey, entitled Equity Ownership in America 2005.

For the sake of this argument, the highlights of the survey are that nearly 90 pct of equity owners hold some or all of their equity assets in tax deferred accounts, 90 pct of all equity holders dont have any sell transations in any given year and 96 pct of investors agree with the statement, “I view my equity investments as savings for the long term�

My “analysis� of this data is that if corporate management wants to be in alignment with shareholders, they better understand the shareholder credo, which is:

�Ive invested in your company for my future and the future of my family. Dont screw it up !�

My “analysis” of this data is that shareholders are well-diversified and utterly passive. They want risk, risk, risk! If CEOs tend to take big risks, then that’s just great for the vast majority of shareholders.