Implications of short-term thinking in investments

Here is an example of how chasing after good short-term grades from financial analysts can be dangerous to a conscious business. Every quarter, analysts predict the gross profit margin (i.e., sales minus cost of goods, divided by sales) for the company. They also typically ask the company how it is going to increase its gross profit margin, as though that should be some type of goal in and of itself. If a company delivers a higher-than-expected gross profit margin, it is considered good, and the company receives a higher grade. The issue is how that is accomplished. Companies can increase their overall profit margin in the short term by cutting jobs, wages, or benefits, raising prices, or squeezing suppliers, but these actions could have negative long-term consequences by alienating team members, customers, and suppliers, respectively.

Mackey and Sisodia, 2014

One thought on “Implications of short-term thinking in investments

  1. Hello there! This is my 1st comment here so I just wanted to give
    a quick shout out and say I really enjoy reading
    through your blog posts. Can you recommend any other blogs/websites/forums that cover the same topics?
    Thanks for your time!

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