BUSINESS

Short-term focus can inhibit vision

Nancy Tengler
Special for the Republic | azcentral.com
Look up. Look long-term. Think great.

Most of us have made decisions we regret. Often this is because our current wants or desires overrule our long-term goals.

In investing we call this “short-termism”— defined as a “tendency to make decisions in search of immediate gratification at the expense of future returns, according to The Kay Review of U.K. Equity Markets and Long-Term Decision Making. This propensity isn’t limited to investors.

According to a 2013 McKinsey study, over 60 percent of CEOs reported that pressure to generate better short-term results had increased dramatically in the previous five years and 80 percent of that same group defined “short-term” as two years despite the fact that building a profitable business requires five to seven years.

A short-term focus can inhibit our vision like a thick morning fog. When considering the view from a valley our line of sight may be limited by our position instead of the facts. A recent example of a stock whose shares have gone from darling to dog and back again in a few short years is Nike (NKE). After the recession in 2008, most consumer discretionary companies experienced a slowdown.

NKE was trading at a discount to its history and its peers yet there were few fans of the shares on Wall Street. Not much had to go right for the stock price to rise and eventually rise it did — over 150 percent. Now, with a forward p/e of 29x next year’s earnings — almost double the estimated p/e of the S&P 500 — the margin for error is slim and the stock is priced for perfection.

Yet many pundits were pounding the table to buy more NKE after last week’s stellar earnings report and subsequent 19 percent rally in the stock price. This is Wall Street short-termism in full force. If you figure out how to make money buying and selling according to the Wall Street wisdom let me know; I would love a piece of that action.

CEOs need to manage their companies for long-term sustainable growth, not next quarter. And investors should purchase shares to meet future financial goals, not short-term gratification. Periods of market volatility or even bear markets provide the courageous, savvy investor with an opportunity to buy great companies on sale (some of my most successful investments were purchased during bear market periods).

A short-term focus blinds us from making the right decision just as the view from a valley blocks the horizon. Extend your focus. Use market weakness or volatility to upgrade your holdings to the reasonably priced shares of great companies. Don’t let other investor’s need for immediate success obscure your long-term objectives. G.K. Chesterton said it best: “One sees great things from the valley; only small things from the peak.” Look up. Look long-term. Think great.

Nancy Tengler is the author of “The Women’s Guide to Successful Investing,” a financial-news commentator and university professor. Reach Tengler at nancy.tengler@cox.net.