I have a general question -- maybe more than one -- about overall market dynamics that is, in a way, related to biotechs. We are all familiar with company "warnings," analyst whining about "lack of visibility," and the litany of upgrades or downgrades based on earnings projections for the next quarter or two. Ordinarily, upgrades and downgrades these days are accompanied by investment house "revisions" of future earnings for the same quarter(s). Rarely more.
So, when and why did this dynamic surface of focusing on the next quarter or two? I recall not-that-many years ago company executives did not discuss very much (in the written material available to the average investor) short-term prospects. Now they seem to speak of little else. Professional investment analysis focused on company fundamentals looking out years, not a couple of quarters. Retail brokers normally made customer recommendations based on long-term prospects over several years. The sometimes unstated, but just as often explicitly expressed, underlying principle was "buy and hold for the long term."
Certainly, as I look back over many years of investing I see that my most successful picks have been based on long term criteria such as fundamentals, quality and stability of management, R&D activity, and products or services which seemed to me to have great potential. My least successful investments, with few exceptions, have been short-term trades driven by some notion about what might happen to a company's stock in the next few days, weeks, or months.
So, is this seeming "new" obsession of Wall Street with the next quarter or two truly new, or was I living in a cave? If it is new, when did it happen? What triggered it? Is it a product of some changed phenomenon in business management? Media business coverage? The ascendance of obsessional technical charting? A vast Wall Street conspiracy? The proliferation of mutual funds? Spiraling competition among investment bankers? Changes in tax laws lowering the transactional costs of short-term trading? Human behavior? A cultural sea-change toward instant gratification? The faster pace of life? The Internet? Increased options gambling on the Chicago Board of Trade? Something else?
What does everyone else think? |
