Buffett And Dimon: No More Quarterly Profit Forecasts

Warren Buffett

Warren Buffett

Berkshire Hathaway CEO Warren Buffett and JPMorgan CEO Jamie Dimon cowrote an op-ed article published Wednesday by The Wall Street Journal.

The billionaire investor Warren Buffett and JPMorgan Chase's CEO, Jamie Dimon, have voiced concerns that the financial markets' focus on short-term goals is hurting the economy and urged companies to move away from providing quarterly earnings guidance.

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, who leads the Business Roundtable, an association of chief executive officers of leading U.S. companies said the move is supported by the group, added the report. At JPMorgan's investor day in February, he called on companies to stop providing the guidance, saying earnings are hard to predict and companies have an incentive to fudge numbers.

They said the pressure for companies to meet short-term estimates was hurting the U.S. economy. Buffett and Dimon said Thursday that a CEO has been hired to lead that effort, and the companies expect to announce that choice within the next couple weeks.

The Business Roundtable has thrown its support behind companies abandoning the practice of quarterly forecasting, Dimon says. "Such short-termism is unhealthy for America's public companies and financial markets - which are critical to economic growth and financial prosperity", Business Roundtable said in a statement.

The practice of forecasting has come under severe criticism in recent times with investors pressurising firms to deliver to their promises, said CNBC.

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.

Dimon said Thursday that about 20 percent of Business Roundtable members still do quarterly guidance and about 60 percent provide annual targets. Companies including Unilever NV, Facebook Inc., GlaxoSmithKline Plc and BP Plc have scrapped the practice in favor of multi-year outlooks, according to the report.

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