Wednesday, July 26, 2006

A Fire-Breathing Radical!

Here’s a terrifying claim that has the potential to undermine our very (driven) way of life.

"Imperfections in the accounting system make quarterly earnings numbers meaningless, former Securities and Exchange Commission Chairman William Donaldson said Tuesday.
"'The real issue is to stop managing a company for the quarterly results. Thanks to assumptions allowed under accounting standards, quarterly earnings numbers 'are so vague,' Donaldson said.
"Instead of a quarterly earnings number, he suggested companies post a range representing their earnings and tell investors what assumptions they used to compute that number. 'There ought to be more qualitative reporting,' he said.
"Donaldson chaired the SEC from 2002 to 2005."

(By Ellen Simon, AP - July 25, 2006)
Forget about quarterly earnings!? Not a chance. Net, the wise men and women of the investment community will look right past this wild theorizing and keep flogging their portfolio companies for ever-increasing quarterly profit growth, mathematical impossibilities be damned.

I mean, take a big enough corporation and insist on steady double-digit growth every three months, and soon that company will need to have assets on the scale of China’s. By the next year they’ll need to look at the acquisition of some planets. So of course they've got to cook the books every so often; once your multiples really start mulitplying you’re looking at some b-i-g numbers, and the shareholders must be kept happy.

Of course, we all heard quite a while back that the Japanese weren't focused on quarterly results, but instead planned far ahead and were patient, and would soon own not just L.A. but the entire western half of the U.S. -- and look what happened to their economy. So let's dispense with this old-fashioned nonsense about long-term thinking, building a company on a solid value proposition and all that rot, shall we?
(Come to think of it, you used to hear a lot about "the patience of Persian rug weavers," too; don't hear much about that anymore, either. Maybe because Persia is now named "Iran." I've noticed that all those dealers now advertise only "Oriental" rugs.)
But don’t worry about society becoming destabilized by this anarchist’s ravings – soon we’ll no doubt hear that he suddenly dropped dead from a heart attack or something, like they took care of Dustin Hoffman’s character. (Don’t accept any lunch invitations from Secret Service guys, Mr. Donaldson!)

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