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Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

Warren Buffett, Jamie Dimon: Quarterly profit forecasts hurt economy

Warren Buffett has joined forces with Chairman and CEO of J P Morgan Chase Jamie Dimon to convince chief executive officers to end the practice of quarterly profit forecasts, reported CNBC. 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 argue that short-term guidance has encouraged companies to hold off on technology spending and hiring and research, and has even discouraged many private companies from going public at all.

Dimon, who leads the Business Roundtable, an association of chief executive officers of leading USA companies said the move is supported by the group, added the report.

"Public companies should be managed for long-term prosperity, not to meet the latest forecast".

"Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability", they said in the op-ed.

Besides their positions as business executives, Dimon is chairman of the Business Roundtable, an organization of about 200 top executives. CEO Jamie Dimon appealed for radical changes to the way public companies disclose financial information.




Dimon has blasted excessive reporting requirements and the short-term focus of quarterly earnings.

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. 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.

Buffett said most CEOs are good at making the right decisions for their companies' long-term future, but ending the forecasts would be one way to improve.

Neither Buffett and Dimon nor the Business Roundtable is arguing against quarterly or annual reports from public companies.

But McKinsey & Co. found in a 2006 study that quarterly guidance didn't affect valuation multiples and didn't reduce share price volatility.