CEOs, JUST STOP ISSUING EARNING GUIDANCE: Some bank CEOs have lowered their company’s overall earnings guidance four times already this year. Please just stop! I have been against guidance for many years because:
- It encourages a short-term focus by both management and shareholders.
- It is a waste of management’s time and attention.
- It doesn’t do anything to enhance the company’s long-term objectives and can possibly be a negative if long-term investments are avoided so the short-term guidance can be achieved.
Those reasons were all relevant in “normal” economic times, but in an economy that’s been distorted by quantitative easing and subsequent tightening and a torrent of federal spending, earnings guidance makes even less sense. Yet some CEOs I respect a lot keep lowering guidance down and wonder why their companies’ P/E multiples stay at record lows. In this type of economy, managements need to focus on execution, and skip the brokerage-house beauty pageants. More action, fewer words. No one better addressed the shortcomings of providing earnings guidance than Warren Buffett and Jamie Dimon did on CNBC’s Squawk Box back in 2018.