President Trump appears to have bought into the Opacity Protection Team promoted myth quarterly reporting causes management to focus too much on short-term results.  On August 17. 2009, he tweeted

In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. “Stop quarterly reporting & go to a six month system,” said one. That would allow greater flexibility & save money. I have asked the SEC to study!

Like all myths pushed by the Opacity Protection Team, this myth has a kernel of truth surrounded by a lie.

The kernel of truth is management does focus on these quarterly results.

The lie is it is the frequency of reporting that causes management to focus on these quarterly results.

The truth is it isn’t the frequency of reporting that gets management’s attention.  It is the fact management offers guidance (some might call it a projection) as to what their quarterly earnings will be for the next quarter and the rest of the year.

When earnings come in below this guidance/projection, management has an incentive to take action to deliver the earnings they told investors to expect.  Hence, short-termism.

Individuals like Warren Buffett and Jamie Dimon recommend doing away with companies providing guidance/projection of future earnings.  A recommendation the Institute for Financial Transparency supports.

The focus by company management on providing guidance/projection of future earnings is the legacy of Jack Welch and GE.  While he was CEO, GE might have been the most respected company in America and other managements tried to copy what it did.  This was very unfortunate.

Under Mr. Welch, GE perfected delivering straight line growth in earnings that beat the GE guided Wall Street consensus per share earnings forecast by $0.01/share each quarter.  Wall Street analysts loved it and GE’s stock traded at a premium.

Not hard to understand why everyone else would want to get into the Wall Street guidance game too.

However, in the absence of short-termism and the resulting accounting games, there is no chance this track record was possible in a conglomerate like GE.  You simply had to look at its industrial business mix to know this straight line increase in quarterly earnings didn’t reflect the underlying business reality.