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September 06, 2018


Luis Enrique

I have heard accounts of firms cancelling investments in the short run to hit earnings targets. OTOH we have Telsa, a long-term bet if ever there was one. So maybe shorttermism is a problem for some firms, sometimes, in some respects, and maybe it makes to try and fix that?

Dave Timoney

Small businesses may well have planning horizons no greater than reporting periods, and they may also defer investment if they fund it out of free cash or operating profit, but I'd be very surprised to find this going on in a larger business, let alone a listed company. Large-scale investments are usually funded by debt and have no short-term impact on earnings.

As the charge of short-termism is typically levelled at big businesses, I'd suggest something else is going on here. The term is typically used by politicians (and think-tanks like the IPPR) as a synonym for an antipathy towards planning, with the inference that this should be coordinated. For financial journalists, it usually acts as a euphemism for executive looting. For executives, it is a ready defence against market expectations.

I doubt that short-termism, in the sense of a habitual and widely-shared attitude, really exists. It's just rhetoric.

Nicholas Gruen

Thanks for the helpful list of references supporting a persuasive case

I always think that when people say short-termism, they're really complaining about the idiocies of managerialism.

It certainly IS true – wouldn't you agree? – that investment managers are index huggers and that is mostly crazy pathology.

If they have a 'strategy' – that is if their schtick is that they're not just selling the index – they should be proud of diverging from it, sometimes on the downside so the superiority of their strategy can demonstrate itself over time.

Of course it's mostly delusion either in the manager or the sucker buying the units or both.

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