Buffett, Dimon urge end to quarterly profit forecasts | AP business

Bad Advice       Quarterly guidance has resulted in bigger earnings surprises since 2016              Source Bloomberg

Bad Advice Quarterly guidance has resulted in bigger earnings surprises since 2016 Source Bloomberg

Dimon, the chairman and CEO of J. P. Morgan Chase, and Buffett, chairman and CEO of Berkshire Hathaway, wrote about the group's endorsement in an opinion column in The Wall Street Journal.

In their op-ed piece, Buffett and Dimon argue that "effective long-term strategy drives economic growth and job creation" and that quarterly EPS guidance "often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability".

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Dimon said companies might forego investments they should make in their business, such as marketing, hiring or research, in order to hit short-term goals. JPMorgan Chase reported lower fourth-quarter earnings January 12, 2018 on weak trading revenues and one-time costs from United States tax reform, partly offset by gains from higher interest rates.Net income for the quarter ending December 31 was $4.2 billion, down 37 percent from the year-ago period. 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. Around that time, big companies like Coca Cola, UPS and AT&T said they would no longer give quarterly guidance.

Despite the short-term hit to results from the tax bill, chief executive Jamie Dimon hailed the measure as a boon for the United States economy."US companies will be more competitive globally, which will ultimately benefit all Americans", Dimon said in a news release.

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Buffett said most CEOs are good at making the right decisions for their companies' long-term future, but ending the forecasts would be one way to improve.

But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility.

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Dimon said that Schultz "would be a great chief executive or governor or senator or mayor or whatever he wants to do", but added that he's not sure that managing a business makes a person suitable for politics. The two business gurus said quarterly financial guidance encourages short-term thinking that stifles growth and limits innovation in the economy.

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