The detrimental effects of regular reporting
One of Investopedia’s top 10 tips for successful long-term investing is to ensure that rational long-term decision making by market participants is not usurped by the practice of emotional investing.
On the one hand regular quarterly reporting of a company’s earnings provides the market with forward looking guidance and can indeed deliver much needed transparency for investors, especially during periods of fluctuating market volatility and economic recovery. There are also times when it may add value to issue earnings guidance to the market in an effort to inform investors about material disruptions or shifts in the business model. But these are seldom.
On the other hand, as we hasten towards the end of a year of political shocks that many would probably like to forget, getting the balance right between long term decision-making and emotional investing is crucial.
Commentators across the UK and Europe appeared on TV and in on-line print articles stating that caution should be adopted following the surprise win by Donald Trump, the now President-Elect, and earlier this year that markets should wait for an inevitable re-balancing to take place following the EU Referendum’s Brexit result. Neither of which the pundits or polls predicted.
In August this year, one journalist writing on Brexit stated that “as we look ahead, the one certainty is uncertainty”. With short-term reporting encouraging investors to make decisions based on the present, based on short-term horizons, perhaps we should be asking whether it is in fact damaging to the encouragement of long-term investing.
During periods of uncertainty, where a rebalancing and adjustment to the macro landscape is necessary for all businesses, the pressure of regular reporting simply instigates an environment in which communicating poor results to stakeholders is met with little sympathy or loyalty, rather than an understanding and appreciation of the organisation’s long-term strategic objectives. Furthermore, companies forced into this practice will likely fall victim to the fact that the media would far rather publish a negative story on poor short-term performance or a knee-jerk reaction. A company’s long-term strategy rarely produces a sexy enough headline.
Companies should instead seek to build a sustainable business that endeavours to deliver investors with long-term success. Short-term investors tend to speculate on volatility and short-term performance. This inevitably means that a communication team’s efforts to outline a company’s long-term strategic objectives are often in vain. Long-term opportunities delivered through the development of a sustainable business model are overlooked in the face of any short-term negative factors – something at risk of being exaggerated during the periods of market volatility and uncertainty we’re currently facing.
Corporates and their communications teams should be working toward the formation and management of a sustainable business that will succeed in the long-term, and crucially, that can ride out the inevitable turbulence experienced in the wake of a shifting geo-political landscape globally. To achieve this, companies, their communications teams and investors alike must realise the detrimental effects that regular reporting and short-term investment decisions can have on long-term success.
Listed corporates and the PR agencies supporting them need to ask themselves whether their company’s communication strategy and the tactics being employed to deliver it are best placed to realise this.
Written by James Madsen, Director