by Ben Claremon | Research Analyst
As long-term-focused investors, we have a certain disdain for the quarterly earnings rigmarole and the associated maniacal focus on “beating” what are somewhat irrelevant earnings per share estimates. The truth of the matter is that, more often than not, what happens during an arbitrary 90 day period has very little bearing on the long-term opportunity for a company or on its intrinsic value. As such, the huge price moves—both up and down—that occur as a result of singular quarterly earnings reports are always somewhat amazing (and sometimes amusing if we don’t own the stock) to us.
The most unfortunate outcome of this focus on the short run performance is that certain management teams succumb to the pressure they receive from certain members of the investment community. In doing so, they risk managing the business to achieve near term results, and thus not thinking enough about what they want the company to look like in five years. In a perverse way, the desire to meet probability expectations on a quarterly basis and avoid a potential drop in the stock price actually can impair the value of the franchise if the management team is too focused on this month’s margins as opposed to investing for the future.
Given all of that, it was very refreshing to read Jamie Dimon’s comments on JP Morgan’s Q2 earnings call. After being barraged with questions from the sell side community regarding millions of details that likely had no bearing on the value of the company, Dimon responded with the following (emphasis added):
No. No, look, I can’t overemphasize this. We do not run the company for quarterly profits. We make long-term decisions on people, systems, technology, products, services, stuff like that. And a lot of things drive short-term profits, but the profit you have at any one quarter relates to the decisions you made for the last 5 years, and so we feel great about these companies. The big weak spot, which we all acknowledge, is mortgage, and we’re going to put the — we’ve got great people there. We’re going to put elbow to the metal there. We’re going to invest some more money in their systems. We’ve got some catch-up to do. We got caught in the middle of, as you know, WaMu, Bear Sterns, origination platforms. But usually, if you look at these businesses, they’re all doing fine, and we’re looking at how we can grow them over the next 5 to 10 years. And that’s what we’re going to do, and I honestly mean it. I don’t care whether FICC is up 10% or 15% or down 10% or 15% in the next quarter. I think — I actually think that this is a complete waste of time.
Channeling our inner Charlie Munger: we have nothing to add.
