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.
Berkshire Hathaway CEO Warren Buffett, J.P. Morgan CEO Jamie Dimon and Amazon CEO Jeff Bezos have chosen a CEO for their health-care venture.
In the latest appeal, they said companies often hesitate to spend on technology, hiring, and research and development to meet quarterly earnings forecasts that can be affected by seasonal factors beyond their control.
"In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability", they wrote.
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Besides their positions as business executives, Dimon is chairman of the Business Roundtable, an organization of about 200 top executives.
Business Roundtable President & CEO Joshua Bolten said, "An outsized emphasis on quarterly earnings per share projections undermines the importance of investments in infrastructure, workforce development and other crucial capital expenditures that drive sustained USA economic growth".
Securities laws require quarterly reports on profits, revenue and other information but do not require quarterly forecasts. 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. Missing "the number" can often result in big, short-term stock moves.
But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility.
"Short-term-oriented capital markets have discouraged companies with a longer view from going public at all, depriving the economy of innovation and opportunity", Buffett and Dimon wrote.