The Financial Times has an article outlining a growing movement in corporate America for the end to quarterly guidance. The argument is that it will curtail the influence of short-term investors and hedge funds, and that argument is as credible that a monopoly offers the best prices to consumers. So what if short-term traders make money on this as trading opportunities. There is one issue that is true, and that is that there is too much demand on companies to communicate. Making predictions every 6 weeks is a bit much, but if a company want access to the public markets they should have to maintain their same structure. Mid-quarter updates are definitely demanding of too much communication and are being paired back more and more, but allowing all companies to end guidance is a step backward by more than 10-years.
Companies are not currently forced to give guidance by law, but analysts and investors expect it. Most times a company says "we are adopting a policy of no longer offering guidance after our earnings" ends up with their stock selling off. After all, if the guidance is good they are more than eager to give this. If they want this structure then they need to be figuring ways to go private so they can bypass all the expectations and regulations. Too much information can be just as problematic as too little information, but too little information is worse in that it makes forecasting even that much harder.
Jon C. Ogg
June 18, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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