On Why Buffett Urges Abolishing Quarterly Report
A joint article co-written by Warren Buffett and Jamie Dimon, CEO of JPMorgan and published by The Wall Street Journal urges listed companies to abolish quarterly report announcing performance and presenting profit estimation. Buffett mentions in the article that the existence of the seasonal presentation would just do nothing but restrain the mindset of the management and force them to make short-sighted decisions.
The idea of the quarterly report is a recent one introduced into the global stock market in a bid to raise transparency of listed companies and allow investors to gain better understanding of the operations of the concerned companies. As a result, they become able to measure how they deploy their investment combinations when aware of the results and growth estimates undertaken by the management.
From the viewpoint of exchange institutions and regulatory bodies, the presence of the quarterly report offers more information about the enterprises and in turn reduce the informational imbalance between small and big investors. On another note, when investors possess more information to assess the development of any listed company, there shall be a higher chance of roll-over which exerts positive effects on the results of the exchanges as well.
However for listed companies, the quarterly report is a total nightmare. Since the enterprise is required to announce to the public a report every 3 months, in order to maintain investor’s anticipation and avoid rating reduction by investment banks and rating agencies, the management tends to adjust company policies in a way that hinders long-term development to a certain extent. Otherwise, in the case of reduced rating, the enterprise suffers loss from harmed reputation and difficulties in obtaining funds from banks. In terms of corporate governance, the existence of the quarterly report doubtless is a troublesome measure when companies have to, not necessarily willingly, amend their policies and deployments to avoid potential deficit.
Moreover, the investors do not benefit too much from director conferences or press conferences held every 3 months, which in itself is a short period of time for any influence to become effective. For most of the time, the board of directors points out only “short-term” influences but not anything indicative to long-term development.
The continuous restraint from quarterly reporting forced upon the management (who has no choice but abandon long-term investment) may end up being self-defeating. Subsequent decrease in performance would eventually result in the drop of stock price as well, with the investor unavoidably suffering from loss and quality listed companies becoming less common as the ultimate double-loss situation.
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