Wednesday, April 06, 2016

Long-Term Investors and Short-Haul Stocks

Some companies play for keeps. Others are in it for the short haul. One sign of short-haul companies: a fixation with increasing the market value of their shares every twelve months. One symptom of the fixation: irrational CEO compensation. One symptomatic corporation in the news lately: Valeant

As The New York Times observes, the fixation seems contagious:
Paying a chief executive largely or solely on the basis of stock price performance might seem reckless. It would seem to create incentives for the executive to focus on actions that get impressive results for a year or two, rather than longer-term actions that might yield higher and more sustainable profits.
But placing a heavy emphasis on the share price is a surprisingly common practice — and is supported by influential groups that advise shareholders on how to vote at annual meetings.
Index investors can't avoid short-haul companies. Selective investors can. An advantage?

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