The billionaire investor Warren Buffett and JPMorgan Chase's CEO, Jamie Dimon, have voiced concerns that the financial markets' focus on short-term goals is hurting the economy and urged companies to move away from providing quarterly earnings guidance. Dimon said he could generate hundreds of millions of revenue for the bank by agreeing to some interest rate swaps.
"We think the president has raised some very critical issues about trade, especially with China, around state owned enterprises, fair competition, market access, the ability to own 100% of a company, and these things should be negotiated out and the Business Roundtable supports those issues", Dimon said. Without company guidance, analysts' estimates are likely to vary more, making share prices more volatile at the same time that estimates become less valuable to investors and, horror, not worth paying for. Making a forecast, and then hitting the target, are seen as a way to manage expectations and eliminate volatility.
Berkshire Hathaway is one of those firms that does not follow the practice as its leader Warren Buffett believes it sends a "wrong message" and tempt executives to manipulate numbers, according to report.
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"Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability", they said in the op-ed.
Proponents of the practice say it improves communications with investors and ultimately results in fewer, not more, wild swings in stock prices. 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. Around that time, big companies like Coca Cola, UPS and AT&T said they would no longer give quarterly guidance.
Quarterly earnings guidance works like this.