The Long Term is the Short Term
Back in 2018 Warren Buffett and Jamie Dimon, the CEOs of Berkshire Hathaway and JPMorgan, respectively, declared in The Wall Street Journal that “Short-Termism is Harming the Economy.” Their gist was that public companies should stop providing quarterly earnings guidance because optimizing for near-term profits was causing companies to hold back on investments in technology, hiring, and R&D that would deliver more robust growth over a longer time horizon.
Similarly, there’s a rich vein of thought in the investing industry that even the best long-term investing strategies will endure lengthy periods of underperformance. Our good friend and value investor Chris Bloomstran, for example, said that “It must be expected that long-term outperformance will come with durations of underperformance, perhaps as much as half of the time over short-term intervals.”
But it’s also true that the future is unknown and unknowable and mathematically the case that a dollar today is worth more than a dollar in the future. Moreover, believing things will work out long-term can be a convenient way to sweep near-term challenges under the rug or explain away underperformance.
The cold reality is that now matters. Most things don’t just get better over time. In fact, due to entropy, absent consistent involvement, everything is gradually declining into disorder.
But what of those public companies that Buffett and Dimon spoke of that are hitting their quarterly earnings targets and not creating sustainable value? The issue there is not that they are short-term oriented, but rather that they are GAAP EPS oriented (see yesterday’s Opinion). In other words, yes, if your goal is to generate fake numbers, no, you won’t create real value.
See, if you’re focused on the wrong things, it doesn’t really matter how often you focus on them, but if you’re focused on the right ones, you should be ruthlessly short-term about focusing on them all the time. The reason for that is that every moment you don’t meet your standard, it becomes harder and harder to keep pace with it over time.
– By Tim Hanson