Mauboussin & Callahan: A Long Look at Short Termism

ASBTRACT:

Short-termism is said to plague all parties in the investment community, including investment managers, companies, and investors. However, it is very difficult to prove.
To assess and evaluate the impact of market short-termism, the right level of analysis is not what individuals say but rather what the stock market does. For many companies, a contraction in time horizon is a proper response to economic reality. Corporate executives and investors who suffer from short-termism are partners in a dance who are attracted to one another based on their characteristics.
The holding period that is relevant in portfolio construction is the time an investor is exposed to an asset class, not the turnover for a particular stock or fund. We provide specific recommendations to deal with the pressures of short-termism for investment managers, companies, and investors.

 

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