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Concurred but... Let's imagine that shareholders agree on a 5 year return on capital plan. Now let's say some missteps/economic circumstances make revenue go d
by nine_zeros 3y ago
Concurred but...
Let's imagine that shareholders agree on a 5 year return on capital plan. Now let's say some missteps/economic circumstances make revenue go down in the 4th year. The CEO will get heat from the investors. This is especially true if the board contains an investor representative who can vote the CEO out.
What choice does the CEO have at that time but to boost short term?
Look at the same story from an employee perspective. Imagine that employee worked for 4 years and the downturn arrives. They invested a lot of time of their precious life, much like the shareholders invested their precious money.
In the downturn, the CEO gets to make a choice and the choice ALWAYS is to boost the stock price for shareholders (and for themselves). Often, at the expense of employees.
- Salgat 3y agoExactly. It's more accurate to say "we look at long term as long as the short term stock price also looks good".
- whimsicalism 3y agoDo you all not understand that the stock price reflects the long term prospects of the company? It’s literally priced in
- somsak2 3y agoIt's really crazy how just a few months ago Facebook's long-term prospects were worth just 1/3 of what they are now! What do you think changed so much during that time to warrant the 3x increase?
- cudgy 3y agoDid you just learn this in Finance 101? The real stock market is priced based on many factors including interest rates, future growth expectations, etc, but the biggest factor of all is psychological.
- Salgat 3y agoThat's only for very broad things; as long as there's no red flags, short term takes priority.
- whimsicalism 3y agoYes, but I think that is because investors rationally realize that the future is extremely uncertain and complex so it is better to weight towards shorter term more predictable outcomes.