Published: Sun, June 10, 2018
Medicine | By Brett Sutton

Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

The pressure to meet short-term estimates has contributed to a fall in the number of US public companies, wrote Buffett, chairman of Berkshire Hathaway Inc (BRKa.N), and Dimon, who is also the chairman of top executives' lobbying group Business Roundtable, in an article on Wednesday.

This combo of file photos shows Warren Buffett attending the Forbes 100th Anniversary Gala in New York on September 19, 2017, left, and JP Morgan Chase Chairman and CEO Jamie Dimon on the floor of the New York Stock Exchange on July 12, 2013.

It is a long-simmering debate but one that has gotten more attention in an era when activist investors are more vocal about pushing companies to deliver on their promises.

Buffett's Berkshire Hathaway doesn't give guidance, which Buffett has said can tempt executives to manipulate numbers to meet Street expectations.

JPMorgan CEO Jamie Dimon, who has made negative comments about the cryptocurrency in the past, said during an interview Thursday with CNBC that while he doesn't want to be a "bitcoin spokesperson", buyers should "beware". Public companies owe it to all of them to get this right, they said.

Warren Buffett and business friend Jamie Dimon argued Thursday that publicly traded businesses can damage their long-term growth and hurt their shareholders by forecasting their earnings every three months and then making short-term decisions to "make the number".

However, companies that are in favor of issuing guidance say that it improves communications with Wall Street, lowers share price volatility and results in higher valuations.

Quarterly earnings guidance works like this. The only significant benefit it observed was an increase in trading volumes, which is good for day traders but not useful for most other people. They have said the practice of telling Wall Street what to expect from earnings can distort management's priorities. Investors Buffett and Dimon are encouraging public companies to stop predicting their quarterly earnings and focus on long-term goals. "Let's not forget how we got here: Reg FD was meant to end selective disclosure, the private guidance on future results", Santoli said.

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