Jamie Dimon, Warren Buffett urge CEOs to end quarterly earnings forecasts

Bad Advice       Quarterly guidance has resulted in bigger earnings surprises since 2016              Source Bloomberg

Bad Advice Quarterly guidance has resulted in bigger earnings surprises since 2016 Source Bloomberg

Dimon, who also leads the Business Roundtable group, and Buffett co-wrote an article about why they think quarterly profit forecasts are hurting the economy. Dimon credited him with doing the "heavy lifting" for the search.

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.

It's "sending the wrong message", Buffett told CNBC's Becky Quick in the interview.

"We think the president has raised some very critical issues about trade, especially with China, around state owned enterprises, fair competition, market access, the ability to own 100% of a company, and these things should be negotiated out and the Business Roundtable supports those issues", Dimon said.

Securities laws require quarterly reports on profits, revenue and other information but do not require quarterly forecasts. Despite the short-term hit to results from the tax bill, chief executive Jamie Dimon hailed the measure as a boon for the USA economy."US companies will be more competitive globally, which will ultimately benefit all Americans", Dimon said in a news release. The analysts take the company guidance into consideration when making investment recommendations and setting price targets for stocks. Missing "the number" can often result in big, short-term stock moves. "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.

Executives often feel pressure to make quarterly forecasts, but "it can often put a company in a position where management from the CEO down feels obligated to deliver earnings and therefore may do things that they wouldn't otherwise have done", Dimon said in a rare joint interview with Buffett airing Thursday on CNBC's Squawk Box . The two business gurus said quarterly financial guidance encourages short-term thinking that stifles growth and limits innovation in the economy.

Quarterly earnings guidance works like this.

Proponents of the practice say it improves communications with investors and ultimately results in fewer, not more, wild swings in stock prices.

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