There’s a growing argument that short-termism – concentrating on boosting current profits rather than investing in the long-term future – is quashing innovation and creating misleading market figures, writes Anne Marie Knott for Harvard Business Review.
Although stock-market indexes suggested a major rise last year, quarterly profits didn’t match up, she writes. Standard & Poor’s 500 and the Dow, for example, shot up in 2017 by 18 and 19% respectively. Quarterly profits, however, increased by just 5% since 2012.
“But investors’ valuations of those profits (as measured by earnings per share) has increased 59% over the same period.” Some experts suggest that this anomaly is the result of many years of short-sighted focus that has left businesses hollowed out and struggling and that it’s now time to reverse the trend.