Monday, September 14, 2009

Buffett & Bogle: Overcoming Short-termism

On September 9th, 2009 Warren Buffett and John Bogle, along with 26 others, signed the following statement with the title "Overcoming Short-termism". The statement was released by the Aspen Institute and makes the case that lower trading costs and technology has enabled investors to become increasingly focused on the short term, and argues for making changes to incentives to discourage this. The statement argues that the problem is systemic and incentives need to be changed to create more long-term investing.

From the Aspen Institute statement:

"...in recent years, boards, managers, shareholders with varying agendas, and regulators, all, to one degree or another, have allowed short-term considerations to overwhelm the desirable long-term growth and sustainable profit objectives of the corporation.  We believe that short-term objectives have eroded faith in corporations continuing to be the foundation of the American free enterprise system, which has been, in turn, the foundation of our economy.  Restoring that faith critically requires restoring a long-term focus for boards, managers, and most particularly, shareholders—if not voluntarily, then by appropriate regulation."

This Wall Street Journal article says lower trading costs and technology has led to frequent trading.

The article highlights the idea that tax policy changes could be implemented to reward long-term holders over short-term holders. That's already true today, of course, but maybe it should be even more so.

Full Statement: Overcoming Short-termism

I think there's little question we'd be better off reversing the short-term oriented direction our capital markets have been heading for years.

Adam

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