Buffett, Dimon say quarterly profit forecasts harming economy

Buffett Dimon make plea to halt quarterly guidance so management can think long-term

The pressure to meet short-term estimates has contributed to a fall in the number of U.S. public companies, wrote Buffett, the chairman of Berkshire Hathaway, and Dimon, who is also the chairman of top executives' lobbying group Business Roundtable, in a Wall Street Journal article on Wednesday. Dimon credited him with doing the "heavy lifting" for the search.

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, they wrote. That's not too surprising given the Dimon is now the chair of the Business Roundtable.

Investor Warren Buffett gestures on stage during a conversation with CNBC's Becky Quick, at a national conference sponsored by the Purpose Built Communities group that Buffett supports, in Omaha, Neb., Tuesday, Oct. 3, 2017, Buffett discussed what philanthropy can do to help fight poverty.

In the op-ed, Dimon and Buffett said the pressure to meet short-term earnings estimates has contributed to a drop in the number of public companies in the United States in the past two decades.

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(FILES) This file photo taken on September 12, 2016 shows Jamie Dimon, chairman and CEO of JPMorgan Chase at the Economic Club of Washington, DC in Washington, DC. Missing "the number" can often result in big, short-term stock moves.

Dimon, in a joint interview with Buffett to CNBC, claimed that executives are often under pressure to make quarterly predictions, but the practice "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", report said.

But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility. The two business gurus said quarterly financial guidance encourages short-term thinking that stifles growth and limits innovation in the economy. They offered "common-sense" recommendations for public companies to improve governance and relations with shareholders.

Both men said they still want companies to release detailed quarterly and annual financial data, so investors can evaluate them.

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