This week, New York Times columnist and political analyst on numerous TV networks, David Brooks wrote an op-ed piece on Why America’s Leadership Fails. In it, he makes the case that the gridlock that persists in Washington is caused, at least in part by politicians arriving in Washington called to serve, only to be overcome by the short term calculations necessary for self-preservation. Whether surviving the crisis du jour or getting in the right sound bite for the next election cycle, the incentive to fight for any long term calling or strategic goal is all but lost. He calls this the “careerist mentality” replacing the “vocation mentality.”
This article happened to align well with the topic I wanted to discuss this week. That same phenomenon, in my opinion, has caused unnecessary and increased volatility in markets for some time now and has the potential to damage, if it hasn’t already, society’s ability to innovate and solve problems as quickly and productively as we otherwise might.
If you’re the CEO of a large public company, a big part of your job is talking to a bunch of stock analysts about your company’s performance every 90 days. By the time you’re finished with one earnings call, it’s time to start prepping and planning for the next. The financial media fuels the fire by covering these announcements like a sporting event, pouring over transcripts word for word to find signs of strengths, weakness or anything that creates a good story line and helps draw eyes to their channel, website or radio show.
Sure, a lot can happen in 90 days. 90 days ago the average American had no idea what Brexit was. We didn’t know the names Simone Biles, Katie Ledecky or what grainy security camera footage from a Rio gas station looked like. Neither major political party had held their convention. We hadn’t even celebrated Memorial Day yet. How many of those things are still front of mind today?
At the same time, 90 days is the blink of an eye. Companies, politicians, ideas themselves, need time to develop and grow. Employees within companies need to be incented for taking measured risks, for researching and developing new ideas and solving unanswered problems. These incentives are usually somewhat expensive in the short run and few, if any, show any kind of pay off in 90 days.
Very little of this analysis ultimately goes to serve the end investor. In fact, as Best Buy proved just this week, no matter what picture or story is told about a given company, the collective wisdom of the crowd may take prices a completely different way.
Is there no hope for new products, ideas and services in the future? I take the optimist’s view and say of course there’s hope. Over the long run, markets continue to pay rewards that dictate these risks are still worthwhile. The consumer continues to demand products and services that solve ever changing needs and technology continues to provide all kinds of potential for new solutions. Companies large and small, in the U.S. and all over the world answer this call, albeit sometimes slower than they otherwise might if not compelled to deliver the right earnings report every three months.
In the meantime, the long-term investor is best suited to ride these waves of increasing volatility, use opportunities to rebalance into asset classes when short-term thinking drives prices down and sell at profits when that same thinking drives prices up.
Now, how can we apply that to Washington???
Have a great week!