The Vicious Circle and Selffulfilling Prophecies of Short-Term Strategy

I was overwhelmed by the obviousness and simplicity of the following finding:

“… firms that explicitly try to maximize near-term earnings and stock prices … face greater risks, including a higher cost of capital and a lower return on assets, than companies that focus on creating long-term value.

One reason for that finding, also reported here, is that firms with a short-term approach have a base of like-minded investors, which results in higher stock-price volatility.”  strategy +business

It carries a certain fairness in itself: Managers with an instant gratification mindset are crushed by investors with an instant gratification mindset.

Wise investors – and wise managers, of course – stay away from such firms and philosophies.