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Wednesday, November 6, 2024

Buffett and Dimon: A Rare Joint Interview on the Economy and Markets

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Wall Street Titans Urge Companies to Ditch Quarterly Earnings Guidance

In a groundbreaking move, Business Roundtable chairman Jamie Dimon and Berkshire Hathaway CEO Warren Buffett, two of America’s most prominent business leaders, have joined forces to advocate for a shift away from the traditional focus on quarterly earnings guidance. In an unprecedented joint television interview, the duo argued that this practice can be detrimental to long-term corporate growth and ultimately harms shareholder value.

"America’s largest companies are owned by 100 million people," Dimon stated, emphasizing the responsibility of corporate governance. "We need to deliver in the long run and build great companies." Both Dimon and Buffett, who have long been critical of short-term earnings targets, believe that focusing too intently on quarterly numbers can lead to misguided decisions that undermine a company’s future.

"I’ve seen companies living by the mantra of ‘making the numbers’ do things that are counter to their long-term interests," Buffett said, adding, "I’ve never seen a company whose performance has been improved by having forecasts out there." Both men highlighted the "ego" factor that can influence CEOs to prioritize hitting short-term targets, sometimes even resorting to dubious financial manipulations.

The Business Roundtable, representing some 200 of America’s largest corporations, is encouraging companies to embrace a more long-term perspective. According to Dimon, approximately 60% of its members currently provide annual earnings guidance. He expressed hope that their initiative could lead to a broader shift away from quarterly guidance, allowing companies to focus on strategic investments and innovation that may not yield immediate financial rewards.

Beyond the debate on earnings guidance, both Dimon and Buffett expressed optimism about the current state of the US economy. Dimon likened the current stage of the economic recovery to the "sixth inning," suggesting that there could be years of sustained growth ahead. "There’s nothing that looks like a real pothole," he said, "and we have additional stimulus coming from tax reform and budget issues."

Buffett echoed this optimism, highlighting the strength of the US business sector. "There’s no question that it’s feeling good right now," he said. While acknowledging the inherent volatility of financial markets, both men remain confident in the long-term prospects of the US economy.

The interview also touched upon pressing issues like trade, healthcare, and the potential for business leaders to play a more significant role in government. Both Dimon and Buffett emphasized the importance of collaboration between the business and government sectors, recognizing the need for nuanced understanding and engaged dialogue between these entities.

While Dimon has expressed a firm commitment to his role as CEO, he acknowledged the growing trend of business leaders considering political careers. He praised former Starbucks chairman Howard Schultz, who alluded to a potential run for public office. "I think it’s a great thing for anybody to be involved in politics," Dimon said, emphasizing the value of bringing fresh perspectives and experience to the political arena.

This joint interview with two of America’s most influential business leaders sends a clear message: the focus on quarterly earnings guidance may be outdated and ultimately detrimental for corporate America. The Business Roundtable’s initiative, coupled with the optimism surrounding the US economy and the potential for business leaders to engage with government, promises to be a catalyst for a new era of long-term growth and strategic thinking.

Business Roundtable Calls for End to Quarterly Earnings Guidance, Supported by Warren Buffett and Jamie Dimon

In a surprising turn of events, the Business Roundtable, a powerful lobbying group representing America’s largest companies, has announced its support for a move away from quarterly earnings guidance. The announcement, made in an op-ed by JPMorgan Chase CEO Jamie Dimon, who is also the chair of the Business Roundtable, marks a significant shift in corporate America’s thinking, with Berkshire Hathaway CEO Warren Buffett lending his powerful voice to the cause. This joint effort, highlighting the need for companies to focus on long-term value creation rather than short-term quarterly profits, has experts and analysts buzzing. Joining CNBC to discuss this groundbreaking move were Buffett and Dimon, in a rare televised interview together.

Key Takeaways:

  • Business Roundtable Shifts Focus to Long-Term Value: The group, representing 200 of the largest American companies, is advocating for a move away from quarterly earnings guidance, arguing that the current system incentivizes short-term thinking, potentially leading to poor long-term decision-making.
  • Buffett and Dimon Lead the Charge: Both legendary investors have long been vocal critics of quarterly earnings guidance, arguing that it can lead to companies making decisions that harm their long-term prospects.
  • Focus on Long-Term Investing: Both executives assert that the focus should be on investments and initiatives that benefit the company’s longevity, even if those initiatives negatively impact short-term profitability.
  • Impact on CEOs and Corporate Governance: The move may pressure CEOs and company boards to focus on long-term strategies that promote sustained value creation, rather than solely relying on short-term financial measures.
  • A Pivotal Step for Corporate America: The Business Roundtable’s announcement signifies a potential shift in corporate governance, with a renewed emphasis on long-term growth and sustainability.

A Long-Standing Issue

The call to move away from quarterly earnings guidance is not a new idea, with both Dimon and Buffett advocating for this shift for years. However, the backing of the Business Roundtable, a powerful lobbying group with significant influence in corporate America, adds weight and legitimacy to the argument.

"America, the largest companies in America, are owned by literally 100 million people, including veterans, retirees, teachers," Dimon argues. "We all feel a tremendous obligation to deliver in the long run, to build great companies," he states, emphasizing the importance of taking a long view.

Buffett, who has long championed long-term value creation, echoes this sentiment. "I’ve never seen a company whose performance has been improved by having some forecasts out there by the CEO that we’re going to earn an X," Buffett explains. "That is sending the wrong message and delivering the wrong results to the company and the country."

The Real-World Implications

While the Business Roundtable’s announcement is a significant step, it remains to be seen how widely adopted it will be. Changing the ingrained culture of short-term focus within companies is a challenging prospect. However, both Dimon and Buffett offer insights into how this change can be achieved.

"This goes down in a company, so this could be pressure at the divisional level, the sales level, that they should go do something different," Dimon says. "They might always do, and very often it’s very easy for a CEO to change a short-term profit number."

"This is just one case that we think we should go another step to to improve the governance of corporate America," Dimon adds, outlining a broader goal of improving long-term corporate governance and decision-making.

A New Era of Corporate Governance

The move away from quarterly earnings guidance could herald a new era of corporate governance. By shifting the focus to long-term value creation, companies may be more inclined to invest in research and development, innovation, and employee training – initiatives that may not immediately boost quarterly earnings but could lead to sustained growth and success in the long run.

"You know some of the CEOs will say, ‘It’s the buy-side, I mean the sell side, that puts pressure on us. But I’m trying to say to people, ‘Be free to drop it.’ You’ll be ok,” Dimon urges. “Companies have done it before.”

Beyond Corporate America: A Focus on the Future

While the focus on long-term value creation is paramount for companies, both Dimon and Buffett believe that this shift in thinking is critical for the future of the American economy as a whole. Both executives, known for their astute analyses of the economic landscape, offer positive outlooks on the future, but with a cautious eye to potential risks.

"The consumer is in very good shape. Their balance sheets, their incomes, wages are going up. Their debt levels are low. All of the credit written since the Great Recession is pristine," Dimon notes. "The way I look at it, there’s nothing that’s a real pothole there that would have the leverage we had in 2007."

Buffett echoes this sentiment, noting that "there’s no question in my mind that America is going to be far ahead of where we are now 10, 20, and 30 years from now." He attributes this optimism to the fundamental strength of the US economy, despite the headlines.

Addressing Healthcare and Other Challenges

The conversation extended beyond corporate governance, addressing key issues facing American society, including healthcare. Both Dimon and Buffett outlined their joint healthcare venture with Amazon CEO Jeff Bezos, which aims to improve healthcare outcomes and reduce costs for employees and potentially the broader population.

"We have the right CEO, and I’m very enthused about it. I know Jamie and Jeff are, too," Buffett says, expressing his confidence in the venture.

Dimon highlights the need to "improve satisfaction for employees and, you know, eventually, we can learn a lot of things and maybe help inform America how we can improve some of these things."

The ongoing trade tensions are a pressing concern for both executives, with Dimon highlighting the Business Roundtable’s unease with the current approach to trade negotiations.

"We think the president has raised some very critical issues about trade, particularly China, around state-owned enterprises, fair competition, market access, and the ability to own 100% of a company," Dimon explains. "These things should be negotiated out, and the Business Roundtable supports the fact that those issues need to be addressed."

However, he cautions, "We don’t think tariffs are the way to do it. Tariffs have unpredictable outcomes. You hurt your allies, you make it tougher for anyone else, people tend to retaliate. You can incite nationalism in countries."

A Call for Collaboration and a Brighter Future

The interview concludes with a call for collaboration between business and government, with both executives emphasizing the need for shared goals and a focus on improving the long-term trajectory of the US economy.

"I don’t think all CEOs translate to [the presidency]," Dimon states, acknowledging the challenges of transitioning from the business world to politics. However, he affirms, "I think getting people involved in government, collaboration with government, is a good thing."

Buffett adds, "Business has done wonderful things for America, and America’s done wonderful things for business."

This high-level conversation highlights a significant shift in thinking within the corporate world, advocating for long-term value creation and an emphasis on sustainability. It remains to be seen how widely these principles will be adopted, but the voices of leaders like Buffett and Dimon, together with the support of the Business Roundtable, signal a potential change in the way businesses operate and contribute to the success of the US economy.

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Alex Kim
Alex Kim
Alex Kim is a financial analyst with expertise in evaluating and interpreting analyst ratings on various stocks.

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