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This is not popular opinion, it's exactly the truth. There is enormous pressure on CEOs to meet analyst expectations of growth each quater and not meeting them

This is not popular opinion, it's exactly the truth. There is enormous pressure on CEOs to meet analyst expectations of growth each quater and not meeting them would immediately mean punishment in terms of sell out. This usually translates to continuously cutting costs and eliminating investments on long term bets. Most boards are heavily populated with representatives of investors and fund managers. They make sure that CEO gets enormously rewarded if growth expectations are met or otherwise gets booted out. They also direct hiring of top execs like COOs, CFOs and prefer the ones who are huge cost cutters - specifically the ones who will go with a stick and shutdown any project which didn't had direct impact on business in near term. They are not fools, they are greedy. None of these "activist" investors are long term people. They specialize in forcing buybacks, unnecessary acquisitions, massive layoffs and other "cost cutting" that will result in stock pop so they can cash out and move on to next vulnerable cow. There is reason lots of companies are sitting on massive cash hoards and unable to utilize it because that would translate to increased capex and tank their quarters. Amazon and Oracle are two companies which have battled through this and have huge scars to prove it. There had been a decade when no one was interested in Amazon stock because it used to take deep dives almost every other quarters. Bezo didn't cared much about his massively fluctuating net worth and kept majority votes but other CEOs are not that gutsy.

WalterBright 9y ago
> This is not popular opinion, it's exactly the truth. Then which stocks are you sure are doing this, and are you shorting them? > There had been a decade when no one was interested in Amazon stock This is simply not true. AMZN has been a solid performer since its IPO. I should know, I'm a happy AMZN long term investor. > that will result in stock pop so they can cash out That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all.
- cpkpad 9y ago
  > That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all. It actually indicates something a bit different. CEO's optimize for their own compensation with bonuses and similar set by quarterly goals. They optimize for meeting goals over company performance. Externally, companies work on perception. Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. They operate only on externally-visible information. Hence, CEOs (who expect an average tenure of three years) optimize for externally-visible information on metrics over long-term performance. They also optimize for graft to the board members (so they can keep their jobs), but that's a whole different story. The exception seem to be founder-run companies. Founders have an emotional stake, a more significant long-term financial stake, and have not gone through the corrupting process of becoming a CEO. Which of those is dominant? Your guess is as good as mine.
  - WalterBright 9y ago
    > Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street". If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good. If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly. It's just not plausible that CEOs can routinely and easily fool these guys.

WalterBright 9y ago

> This is not popular opinion, it's exactly the truth. Then which stocks are you sure are doing this, and are you shorting them? > There had been a decade when no one was interested in Amazon stock This is simply not true. AMZN has been a solid performer since its IPO. I should know, I'm a happy AMZN long term investor. > that will result in stock pop so they can cash out That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all.

cpkpad 9y ago
> That implies they must find a lot of suckers to sell to. Stock prices are usually driven by analysts who spend their days analyzing companies to predict future performance. Good luck fooling them all. It actually indicates something a bit different. CEO's optimize for their own compensation with bonuses and similar set by quarterly goals. They optimize for meeting goals over company performance. Externally, companies work on perception. Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. They operate only on externally-visible information. Hence, CEOs (who expect an average tenure of three years) optimize for externally-visible information on metrics over long-term performance. They also optimize for graft to the board members (so they can keep their jobs), but that's a whole different story. The exception seem to be founder-run companies. Founders have an emotional stake, a more significant long-term financial stake, and have not gone through the corrupting process of becoming a CEO. Which of those is dominant? Your guess is as good as mine.
- WalterBright 9y ago
  > Analysts have no way of knowing if good R&D is still going on or if sales figures are getting inflated. Analysts are paid a lot to get this right. There are a number of ways to figure this out. I read, for example, of analysts counting cars in store parking lots. Peter Lynch of Magellan Fund fame talks a lot about getting this information via proxies in his book "Beating The Street". If you follow corporate earnings reports, you'll often see the stock drop on seeing a report of good earnings that exceeded expectations. This is because the analysts got a whiff of a stink coming from the company that their long term prospects weren't so good. If the corporation is larger, there is a LOT of money (billions of dollars) riding on correctly predicting future performance, and analysts who can figure it out get paid accordingly. It's just not plausible that CEOs can routinely and easily fool these guys.