Quarterly Evaluation May Cloud Long-Term Vision

If financial goals (and companies and countries) are built over years, why do we measure them by quarters?

As a society, all eyes are on the end of the year. Who can resist? It’s the holidays, and for many of us, it’s the crowning moment of the year.

For Wall Street, there are four such crowning moments annually: March 31, June 30, September 30 and December 31. The hallowed four quarters of the financial calendar, when earnings are reported and dividends are paid, when corporate strategy is evaluated, and when portfolios and portfolio managers are measured.

A terrible yardstick

In many ways it is an all too impatient and myopic lens for viewing performance. As a financial adviser, I know that “short-termism” is bad for individual investing. Most investors are thinking of retirement, so their time horizon is 10, 20, 30 or more years in the future. Getting a reading on where your wealth stands every quarter is important, but it is a terrible yardstick for performance and potential. Growth and success — whether in your portfolio or in the companies in which your portfolio is invested — takes time, and it doesn’t chart on an ever-rising straight-line vector.

“Short-termism”

As an average citizen and a casual observer of the world around me, I strongly suspect “short-termism” is also bad for other aspects of our lives such as health, politics and leadership. We make the easy decisions for short-term gain, thereby jeopardizing our long-term success. Immediate events demand a reaction and the wisdom of adhering to a patient, principled vision seems like no decision at all.

And the result is that we often do the precise opposite of what really needs to be done. We succumb to expediency, popularity and ideology. We don’t pony up the capex that we know will pay off. We make the consumer’s impulse buy rather than saving that money. We eat the cake.

An age of instant information — and instant gratification

Our age of instant information has not helped our urge for instant gratification. In fact, the two may be intertwined. With information instantly available to us 24-7 via high-speed internet and our ubiquitous digital devices, we are engulfed in near-term noise. We don’t have to think things out for ourselves, because Facebook, Twitter, YouTube and other social media sites have already beaten us to the punchline.

Ironically, our informational superabundance might even be making our decision-making emotional, focusing us on a geyser of real-time data-points rather than a stream of valid, relevant connections. Much is made of the younger generation’s facility with technology, their ability to multi-task, assimilate and sort information, but the tradeoff may be diminishing attention spans and the erosion of deep, complex thinking.

A 2012 study by the Pew Research Center’s Internet and American Life Project expressed that very concern. Says Alvaro Retana, a distinguished engineer at Cisco Systems and survey respondent, “The short attention spans resulting from the quick interactions will be detrimental to focusing on the harder problems. … The people who will strive and lead the charge will be the ones able to disconnect themselves to focus on specific problems.”

Taking the longer view

As a financial advisor at a wealth management firm, I and my colleagues look for companies that deliver value to their shareholders, whose fundamentals are strong, who are advantageously positioned vis-à-vis their competitors and global market conditions, and are trading at attractive prices given their business opportunity. One of the companies we like is currently making investments in its processes that will significantly decrease its production costs and increase volume. Viewed by today’s quarterly snapshot, the company simply isn’t profitable. Seen from a higher vantage point with a panoramic view of the horizon, the company is taking necessary measures to optimize its operations and cement its future competitiveness.

Time will tell — but not the kind of time that’s measured in three-month increments. We could be wrong about this company (no one has a crystal ball), but our years of due diligence and patience have convicted us otherwise. And if that company does indeed begin realizing the returns on that investment sometime in the future, our clients are going to log into their accounts, see their gains and, despite what their calendar says, it’s going to feel like Christmas.

Follow this company’s example. Be a good steward of your own capital by developing a clear, long-term plan for your financial goals and ignoring near-term benchmarks. A financial adviser can be an essential partner in helping you to do this.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.