Interesting viewpoint. Actually I take the reverse view. I believe that the stock market forces businesses to focus on quarterly earnings to the detriment of long term business. Businesses try to make earnings every quarter despite fluctuations in demand, so they end up in slow quarters paying overtime to ship until midnight the last day of the quarter, or running end of quarter sales trying to get sales closed at the last minute, hopeful that they will be able to make it up later. Or maybe they have a better than expected quarter, so they delay shipments until after the end of a quarter or accelerate costs trying to balance things out.
Sometimes these tricks work to smooth quarterly earnings, and sometimes they don't. But do they ever represent good business practices? Would the businesses do this if they didn't worry about quarterly earnings?
For another example contemplate two companies that control an industry, one strong and the other weak (imagine Intel and AMD). If anti trust laws weren't involved, and quarterly earnings weren't an issue, the strong company could slash prices and kill off the weaker opponent. This would maximize long term profit at the expense of short term profitability. Which company is worth more? The one taking short term losses to assure long term profit and monopoly, or the one taking consistent but smaller quarterly profits?
Let's look at MU specifically for a minute, since that is the thread we are on. Over the last 10 years some competitors such as TI have lost money. MU has consistently made money except for brief periods such as the last 12 months when the market has been unusually harsh. Even then, they lost only a very small amount, much smaller than the bulk of their competitors. Thus it would be hard to argue that from a perspective of managing the day to day affairs that MU's management isn't exceptional. Despite this, because of market conditions primarily caused by the ready availability of shrinks at relatively low cost (available to all competitors in the industry), MU lost money for two consecutive quarters. It would be insane to fire some of the best managers in the DRAM business for general market conditions caused by technological change.
On the other hand, when a company should be making money, and doesn't because of inept management, for example SGI, I agree that they should be fired. Hard and fast rules such as yours never work in real life the way you think they should.
As another example of whether or not markets overreact, contemplate the semi equipment industry. Not long ago NVLS was selling for 23. A few months later it was selling at three times that, and it is now selling between these two prices. The low point was a ridiculously low price, and the high was probably equally ridiculous. In reality the long term value of NVLS did not change during this period, only the prospects for the next 90 days or so. But if you realize that the markets do in fact overreact, you can make a lot of money.
Turning again to MU, by going to 80, MU certainly overreacted to the good news. Before they are done, MU may well overreact to the bad news as well. I wish you good luck in figuring out where those points are,
Carl
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