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Buffett, Dimon urge end to quarterly profit forecasts

Buffett, Dimon urge end to quarterly profit forecasts

Buffett's Berkshire, along with Jamie Dimon's JPMorgan and Jeff Bezos's Amazon, said in late January that they planned to start a joint venture to improve health care for their workers.

Companies often hold back spending on technology, hiring, and research and development to meet quarterly earnings guidance that may be affected by factors outside the company's control, the business leaders wrote.

Dimon, chairman of the Business Roundtable, noted that the group of CEOs also support companies moving away from the practice and instead, focus on long-term value creation.

"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.

Dimon, is chairman of the Business Roundtable, an association of almost 200 CEOs that is also backing the push to eliminate so-called short-termism. 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.

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When the actual earnings results are officially reported, so-called beats - or profit results that top expectations - are often rewarded with a rise in the stock price. "Short-term-oriented capital markets have discouraged companies with a longer-term view from going public at all, depriving the economy of innovation and opportunity", they said.

Although we've seen no immediate opposition to the proposed elimination of quarterly EPS guidance, it's not hard to imagine what at least one argument might be: just because companies don't publish the number does not mean they won't calculate such a number.

In a CNBC "Squawk Box" program interview and an opinion piece published in the Wall Street Journal, Buffett and Dimon said quarterly forecasts, known on Wall Street as "guidance", take up management's time and lead to decisions that don't benefit companies or their shareholders.

Buffett and Dimon said they were not opposed to the practice of quarterly and annual reporting that ensures transparency.


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