I've always laughed at quarterly earnings guidance.
Instead of focusing on primary business issues, CEO's are focusing on "managing the scoreboard". What a bunch of poppy cock!
While people think of accounting as an exact science, there is so.....much latitude for management discretion in financial reporting. This is a clear opening for "managing the scoreboard". Add the whole management chain in the process and there are a lot of employees who will readily "frame" accounting practices (usually within accounting guidelines, but sometimes not) to make the company's numbers. Now, instead of focusing on building the business, they are focusing are meeting the short term numbers.
I once worked for a company who focused excessively on cash flow. The result was little capex investment. Sure, the sort term cash flows looked great, but the company's asset base was readily being decimated.
As I always say, I can save money by not changing my car's oil, but sooner rather than later, I am going to have a piece of junk. What sense does that make?
In life, we often have to do things that may not been beneficial in the short term, but in the long term, those short term moves are essential to success.
It reminds me of some old high school buddies who didn't go to college and were making a good chunk of change working as painters. I was in college making nothing. In fact, I was borrowing money to pay for it. Eight years later, my buddies were probably capped out in their earnings, but I was beginning to make more money than them and it was increasing.
Buffett really brings it home when he says, "Think of the businesses as a partnership that you can't cash out of for 50 years." You are going to do the right things for the long term without excessive concern for the short term. It is that simple.
