VERY disturbing. Why does President Trump want to end quarterly reports and move to every 6 months? HERE, believe it or not, CNBC got it right. It helps corporate investors and the banks. PERIOD. #FAKEMARKETS How can anyone defend this? pic.twitter.com/RXKUBPczPS
— Gregory Mannarino (@GregMannarino) August 17, 2018
President Donald Trump on Friday advocated for a possible end to the long-held quarterly earnings reports for publicly traded companies, saying it would boost business and in turn help create jobs.
In a morning tweet, the president said he had spoken to “business leaders” for their ideas on growth and they believed filing earnings reports every three months was one obstacle for growth. One idea would be to report every six months.
While I’m pro quarterly, I can see the argument. Smarter people than me can make the argument of hurt vs hinder of quarterly reporting to a long term investor and in some cases I can see the scrapping of quarterlies as good on an individual business level. Hell, I have held a large position in unilever even after they scrapped quarterly earnings guidance.
That being said im kind of wary in believing in a soundbite that is so easily digestible as “quarterly capitalism bad!” To be clear this isn’t an indictment on trump, Hilary had the same loud criticism of quarterly reporting. I have made a lot of money on simple calls following quarterly reports, and the short term choppy waters after an earnings miss have little reflection on the long term value of where I expect a stock to be in 2+,5+, 10+ years. Still, I have a few reasons why downright ending quarterly reporting is a mistake.
Aside from the money I have made from the choppy waters of post-quarterlies, the real reason I feel quarterly earnings are still important, despite the fact that they undoubtedly lead to a rushed, short sided culture at least amongst some c-suites, is that analysts require continual forward looking estimates to gauge if the company remains in their long-term growth path. The earnings might focus entirely on ebitda or other non-gaap goofy ass numbers, massaging the stats to explain away missing the mark. This is fine once or twice of course, but I have been invested in companies where I had little access to inside information and after several quarterly reports where the executive time mainly focused on the ebitda I ran for the hills as sell side analysts adjusted their positions.
One of the biggest mistakes of the pro ending quarterly reporting crowd is assuming that long term capital investment with no investor oversight is always a good thing. There are plenty of poisonous assets that Japanese firms invested in with a long term strategy back in the 80s that still haven’t reached near the previous peaks. There is bound to be a glut of poisonous debt that Chinese firms have invested in that are going to cause serious problems down the line. The hectic, ADHD model of american capital allocation has its downsides, but it has endured and largely maintained value for shareholders. For all its faults, in America usually capital is used efficiently on projects with a clear understanding of risk-adjusted returns, and not wasted on unsure speculation that might never pan out (usually, there is always an enron, a theranos, or even a tesla to point out).
In short, a quarterly report is just the start of the long term: if earnings aren’t continually monitored, potentially adjusted, and planned for than growth won’t happen either way. Quarterly reports are just short term updates on the larger class project of long term growth