Short-term thinking in the business world, particularly in light of the remarkable post-US election rally, is becoming a problem for serious investors. This issue which seems to bubble and roil below the surface of public discourse warns of the perils of becoming too obsessed with stock price gains at the risk of devaluing long-term strategic planning.
The
issue is mostly masked because (1) no one questions its impact as long as
portfolio values are increasing and (2) it undermines serious discussion about
morals, values, priorities, and goals.
When
the singular focus of corporations is to generate quarterly return to
shareholders, the greater driver of capital expenditures becomes "immediate reward". Left in its wake, however, is a cacophony of
fewer services, less money spent on research and development, a lack of
attention paid to synergies within the community, and fewer new-hires from the
surrounding population. In effect, it
becomes all about the here and now.
Under
pressure to respond to Wall Street's demand for higher share valuation,
business offers up to the public a litany of unique perks such as dividend
payouts, stock buybacks, and other favors for those to benefit the quickest and
the most. As we hear a smattering of
news announcements about the new political administration's intent to roll back
regulations and other cost burdens from the business community, we worry that
we are going to see an acceleration of more greed, more of the same...or worse.
In
the face of declining or stagnating earnings and consumer demand, accounting
alchemy and chicanery have yet again become substitutes for prudent corporate
governance.
Hide
in plain sight
By
itself, there is nothing inherently wrong with rewarding shareholders. The
problems arise, however, when the interests
of the corporation are at odds with the greater good of the public they
service. Shareholders and
shareholder interests are basically the same the world over...we expect
competent stewardship of our money. But
by holding so dearly to short-term values as their singular motivation,
corporate boards and executives are under-delivering on their promise, even if their public shares are rising on
the stock exchanges.
In
theory, those two should not be mutually exclusive. In practice...in the real world....they are
unfortunately diametrically opposed.
The
fundamental human traits that are causing the markets to conflate making money and doing
well by others have become frivolous
excesses...almost annoying conversation.... in today's manic get-rich-quick
market climate. "Cash in hand"
has become the moniker of this generation's speculator, even if that money
might be worth more if invested for the long run.
It
looks to this observer as if Wall Street has almost created a "discounted
modifier" as the denominator for current research, analysis, and
decision-making. Somehow, even the
phrase "all time high" doesn't have the same cache or relevance as it
once did.
High
acceleration, instantaneous trading has engendered more randomness into the
investment landscape. Instead of having
confidence in the markets, more investors talk about uncertainty and fear than
ever before, even as the wealth gap continues to widen between those who are
reaping the reward from the stock markets and those who are still just managing
to get by. There is a palpable panic
pace of simply lining one's pockets while the getting is good. For those fortunate enough to have money to
play with, they are just trying to get out of the way in the event their
largesse suddenly comes to a screeching halt.
This
is the market we have created and which, unless something is done, will be the
pattern of making money we pass on to the next generation of investors.
We
should have plenty of fodder about which to write in the coming months......
Our
next publication will be the Quarterly Market Outlook, January 1, 2017
Happy
holidays.
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