There is absolutely no doubt that short term thinking is critical in the modern public company, and certainly examples of detrimental effects of it: at a simplistic level, when executive remuneration and bonuses depend on share prices with quarterly reviews, executive teams can (not do, this is not an absolutist position) focus on short term measures to boost their numbers - maybe they invest less in R&D, maybe they cut training budgets, maybe they fail to invest in long term growth options.
To your other point re Amazon (and really a large number of tech companies) - the multiples we see in these areas are Abberations that are hard to find historical economic rationalisations for. Take Tesla’s PE multiple, for example. At least Bezos laid out to everyone in his first shareholder letter that amazon was going to reinvest everything for pretty much forever. The bottom line: markets don’t always work as efficiently as we believe, and human psychology is the cause
> focus on short term measures to boost their numbers
Again, this relies on fooling the investors who bid up the stock price based on that. How long can a company continue to fool the investors?
I had a CEO once tell me how he had manipulated the accounts for short term gains "because that's what Wall Street wants." But the stock tanked. The only one fooled was the CEO. The company has since disappeared.
The S&P500 is made up of companies that have been around for a while. How long do you think a company is going to last, if quarter after quarter they eat their seed corn? How do you explain the growth of the S&P500, decade after decade after decade, if the stock market is plagued with short term-itis?
As I said, it is not a rule or universal but it is a distinct feature that has multitude of examples, even within a firm, where different business units may be fighting aggressively to hit their numbers for a quarter even at the cost of longer term growth
By the way, if you know of specific companies that are sacrificing long term for short term stock prices, you can make a ton of money by shorting their stock.
I've done well investing on the presumption that companies are long term focused. I.e. I'm a buy and hold and hold and hold investor. The longest I've held a stock (Boeing) is 37 years. You can check how well it's done for yourself over that time period, and Boeing was constantly charged with destroying the long term in favor of short term results.
It's inconceivable that Boeing was not long term focused with those results.
Not at all. I don't know anything about Boeing in specific here, but:
Say that Boeing was short term focused over that time period but managed to do well, quarter after quarter, continuing to rise. It's possible that if instead Boeing had been long term focused over that time period, each many individual quarters would have been worse, but it could have a higher valuation now.
Of course, that's certainly not proof that they were long term focused, just that they weren't definitely short term focused.
Boeing invests in new airplane programs that can take 10 to 15 years to turn profitable. The charge that Boeing is short term focused makes no sense at all, but that doesn't even blunt the regular charges that Boeing management sacrifices long term for short term results.
To your other point re Amazon (and really a large number of tech companies) - the multiples we see in these areas are Abberations that are hard to find historical economic rationalisations for. Take Tesla’s PE multiple, for example. At least Bezos laid out to everyone in his first shareholder letter that amazon was going to reinvest everything for pretty much forever. The bottom line: markets don’t always work as efficiently as we believe, and human psychology is the cause